Final answer:
The interest rate risk of an asset increases with its duration, making option C) decreases; increases the correct answer.
Step-by-step explanation:
An asset's interest rate risk increases as the duration of the asset increases. Therefore, the correct answer is C) decreases; increases. Interest rate risk refers to the potential for investment losses due to changes in interest rates. As the duration of an asset, which is the weighted average time until all the cash flows from the asset are received, increases, the asset becomes more sensitive to changes in interest rates. This sensitivity to interest rate changes means that when interest rates rise, the value of the asset tends to decline more sharply if it has a longer duration compared to an asset with a shorter duration.