Two bonds are identical except that one runs for thirty years and one for two. The longer bond carries more:
AInsurance premium
BIssue commission
CInventory cost
DInterest rate risk
Answer & Solution
Correct answer: D. Interest rate risk
1. Rates have far more time to move over thirty years.
2. A price fixed today is exposed to all of that movement.
3. So as the term increases, so does interest rate risk.
_Source: OpenStax Principles of Finance 2e, Chapter 10, Bonds and Bond Valuation._
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