Economics · Fixed Income Securities
A bank's treasury department is evaluating two fixed-rate bonds, Bond A with a maturity of 3 years and Bond B with a maturity of 15 years, both having the same coupon rate and face value. If market interest rates increase by 50 basis points, which of the following statements correctly describes the impact on their market prices?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Neither bond price will change as the coupon rates are fixed until maturity.
- 2Both bonds will experience an identical percentage decrease in price since the coupon rates are the same.
- 3Bond B will experience a larger percentage decrease in price than Bond A.✓
- 4Bond A will experience a larger percentage decrease in price than Bond B.
Correct answer
Bond B will experience a larger percentage decrease in price than Bond A.
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