Final answer:
Long-term bonds are subject to more uncertainty than short-term bonds due to their exposure to risks like changes in interest rates and issuer creditworthiness. If interest rates rise, the market value of a bond usually decreases. Treasury bonds have higher returns than savings accounts, while AAA-rated corporate bonds generally offer even higher returns.
Step-by-step explanation:
The correct answer to the student's question 'Long-term bonds are ________ than short-term bonds' is C) subject to more uncertainty. Long-term bonds are more exposed to various risks over time, including changes in interest rates, inflation, and changes in creditworthiness of the issuer. This means that there is more uncertainty associated with the returns of long-term bonds compared to short-term bonds.
In regards to interest rates, when they change, the value of existing bonds will inverse to this change. If interest rates rise, the market value of a bond will generally decrease, and vice versa. Assuming you purchased a bond for $10,000 and interest rates have increased since your purchase, you would likely have to sell the bond for less than $10,000 if you decided to sell it before maturity.
Bonds have varying return rates based on their risk level and the current interest rate. For example, Treasury bonds usually offer higher return rates than bank accounts, and highly-rated corporate bonds typically offer even higher rates reflecting their increased risk compared to government bonds.