Explain why if interest rates increase after a bond issue, the bond's price will decline and the
Question:
You are considering two investments: a 1-year Treasury security and a 20-year Treasury security. Explain why the longer-term Treasury security would be considered riskier than the shorter-term Treasury security.
Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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Bond Price and interest rates have inverse relations Hence if the interest rates increase bond prices decrease Current Bond Price is the present value of all the future cash flows at the current interest rates When interest rates are equal to the coupon rate the present value of cash flows is equal to the par value of the bond and yield to maturity is equal to coupon rate But when the interest rate increase the present value of cash flows decreases and hence the bond price ...View the full answer
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Related Book For 
Fundamentals of Financial Management
ISBN: 978-0324664553
Concise 6th Edition
Authors: Eugene F. Brigham, Joel F. Houston
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