Final answer:
The statement that bond price sensitivity to interest rate changes is greater for bonds with longer maturities is true. Bond prices fluctuate inversely with interest rates due to the present value of their future cash flows, which are more significantly affected over longer periods.
Step-by-step explanation:
The correct answer to whether the price sensitivity of a bond to a given change in interest rates is generally greater the longer the bond's remaining maturity is A. True. The longer a bond's maturity, the more its price will fluctuate in response to interest rate changes. This occurs because the present value of a bond's future cash flows, including both interest payments and principal repayment, is more affected when those payments are further in the future. When interest rates rise, the present value of those future payments decreases, leading to a drop in the bond's price; conversely, when interest rates fall, the present value increases, leading to a rise in the bond's price.
If interest rates change, you would expect to pay different than $10,000 for a bond originally priced at that amount, depending on whether the rates have increased or decreased. An increase in interest rates would lead to a decrease in the bond's price (so you would pay less), while a decrease in interest rates would lead to an increase in the bond's price (so you would pay more).