Bond Price Sensitivity to Interest Rates

Medium Fixed Income Securities Bond Markets

Changes in interest rates have a significant impact on bond prices. An investor is looking to understand how the bond markets react to a change in interest rates, specifically focusing on duration and convexity. Duration measures the sensitivity of the bond's price to interest rate changes, while convexity measures the change in duration as yields change. Given this context, which of the following statements about bonds and their price sensitivity to interest rate changes is correct?

Bonds with longer maturities typically have lower duration and lower price sensitivity to interest rate changes.

Bonds with higher coupon rates generally have lower price volatility compared to zero-coupon bonds.

The price of a bond increases as interest rates rise, regardless of the bond's duration.

Hint

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