Answer to Question #314530 in Finance for Comfort

Question

What is interest rate (or price) risk? Which has more interest rate risk, an annual payment 1-year bond or a 10 year bond? [3 marks]

Answer 1

The ten year bond is riskier than the one year bond because of the longer maturity period in which the bond rates may keep on fluctuating. Unlike the one year bond, if the rate increases the more you will have to pay before it matures