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Basic Question 13 of 19
Bond price sensitivity ______ at a(an) ______ rate as maturity increases.
B. increases; decreasing
C. decreases; decreasing
A. increases; increasing
B. increases; decreasing
C. decreases; decreasing
User Contributed Comments 10
| User | Comment |
|---|---|
| tanyak | why does it increase at a decreasing rate?? |
| Masterkang | Obviously the increase of the maturity from 1 year to 2 years has a bigger impact then then increase from 29 to 30 years. |
| omer123 | tanyak at longer maturities the change in price due to interest rate volatility will be smaller due to positive convexity and large at smaller maturities. |
| euniceyew | can anyone explain further y it increase at a decreasing rate..i still dun get the explanation..thanks |
| bhaynes | euniceyew - just can think about it on a percetage basis. If you increase a maturity for 1yr to 2yr, you doubled it. Where if you increase 19yr to 20yr, it's only about a 5% increase. While both increase, the latter increases by a smaller amount comparatively speaking. |
| harpalani | Thanks bhaynes! That's convincing. |
| johntan1979 | Or you can make up an example: 8% coupon, 2 years, yield 9% PV = 98.21 8% coupon, 3 years, yield 9% PV = 97.42 Percentage change = -0.7995% 8% coupon, 10 years, yield 9% PV = 93.50 8% coupon, 11 years, yield 9% PV = 93.11 Percentage change = -0.4153% See the decreasing rate? |
| assiduous | I like bhaynes' explanation. This concept can also be observed just by watching how the yields react to monetary policy. |
| Inaganti6 | Bhaynes DORLING LOVELY |
| khalifa92 | long-term bonds price volatility is greater than short-term bonds. |
Your review questions and global ranking system were so helpful.
Lina
Learning Outcome Statements
identify the relationships among a bond's price, coupon rate, maturity, and yield-to-maturity
CFA® 2024 Level I Curriculum, Volume 4, Module 6.