- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 44. Introduction to Fixed-Income Valuation
- Subject 2. Relationships between Bond Price and Bond Characteristics
CFA Practice Question
Which of the following statements most accurately depicts bond price volatility?
A. Short maturity bonds are more volatile than long maturity bonds.
B. During periods of increasing interest rates, high coupon bonds exhibit lower price volatility than low coupon bonds.
C. Bonds with low duration are much more volatile than bonds with high duration.
Explanation: When interest rates rise, all bond prices will fall. However, the price of some bonds will fall at a lower rate. For instance, if a bond is paying higher coupons, these coupons may be reinvested at the new prevailing higher interest rates. This is a plus. Therefore, this beneficial feature helps reduce the rate at which the bond price is falling.
User Contributed Comments 3
| User | Comment |
|---|---|
| volkovv | lower the coupon, higher the volatility longer the maturity, higher the volatility |
| kellyyang | lower the coupon will more sensitive to IR |
| anaraguin | double L rule: Longer Maturity, Lower coupon. Lots of Volatility |