Question

Because short-term interest rates are much more volatile than long-term rates, you would, in the real world, generally be subject to much more price risk if you purchased a 30-day bond than if you bought a 30-year bond.

True
False

Answer 1

Answer: The correct answer is False.

Explanation: Long term bonds are riskier than short term bonds, making the answer False.

The longer the time period for bonds, the greater probability that interest rates will rise (and negatively affect a bond's market price). Investors often buy bonds and then resell them as an investment. If they attempt to sell them before maturity they may be faced with a deeply discounted market price. Short term bonds are more stable because it is probable that the investor will keep the bond for the entire life of bond. This eliminates the risk of resale, with the investor cashing in their bond at the predetermined rate on the predetermined date.