Question

Bond price volatility varies directly with the term to maturity and directly with the coupon. Group of answer choices True False

Answer 1

Answer: False

Explanation:

Bond Price Volatility does indeed have a positive relationship with term to Maturity because the longer the term to Maturity, the more the bond can be affected by interest rates which will lead to price changes.

However, Bond Price Volatility has an Indirect relationship with Coupon rates. The higher the Coupon rate, the lower the volatility because interest rates affect bonds that are paying lower coupons more than they do high ones. Having a higher coupon bond means that price does not change as much due to interest rates.