SIE Exam Question 868: Answer and Explanation

Question: 868

Which of the following is/are correct regarding a bond's interest rate and term to maturity?

(1) The lower a bond's interest rate, the lower its relative price fluctuation.

(2) The longer a bond's term to maturity, the greater its relative price fluctuation.

• A. (1) only
• B. (2) only
• C. Both (1) and (2) are correct.
• D. Neither (1) or (2) are correct.

Correct Answer: B

Explanation:

The lower a bond's interest rate, the greater its relative price fluctuation. The longer a bond's term to maturity, the greater its relative price fluctuation.