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When the time to maturity of a bond equals the holding period there is no?

When the time to maturity of a bond equals the holding period there is no?

There is no interest-rate risk for any bond whose time to maturity matches the holding period.

Why is the remaining time to maturity an important factor in evaluating the impact of a change in yield to maturity on bond prices?

Why is the remaining time to maturity an important factor in evaluating the impact of a change in yield to maturity on bond prices? The longer the time period remaining to maturity, the greater the impact of a difference between the rate the bond is paying and the current yield to maturity (required rate of return).

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Why longer terms bonds are exposed to maturity risk?

This is because longer-term bonds have a greater duration than short-term bonds that are closer to maturity and have fewer coupon payments remaining. Long-term bonds are also exposed to a greater probability that interest rates will change over its remaining duration.

What is the main reason why long-term bonds are subject to greater interest rate risk than short-term bonds?

Why are long term bonds more sensitive to interest rates?

When interest rates rise, bond prices fall (and vice-versa), with long-maturity bonds most sensitive to rate changes. This is because longer-term bonds have a greater duration than short-term bonds that are closer to maturity and have fewer coupon payments remaining.

What is interest rate risk Why does a bond with a longer maturity have greater interest rate risk than a bond with a shorter maturity?

Why are bonds with longer maturities more risky?

Here, we detail why it is that bonds with longer maturities expose investors to greater interest rate risk than short-term bonds. When interest rates rise, bond prices fall (and vice-versa), with long-maturity bonds most sensitive to rate changes.

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What happens if you don’t hold bonds until maturity?

On the other hand, if the investor does not hold the bond until maturity (a common practice for long-term bonds), the total return will be equal to the yield over the length of holding, or the holding period return (HPR).

How can investors hedge interest rate risk in bonds?

Investors can hedge interest rate risk through diversification or the use of interest rate derivatives. A concept that is important for understanding interest rate risk in bonds is that bond prices are inversely related to interest rates. When interest rates go up, bond prices go down, and vice versa.

What is a holding period return on bonds?

Holding Period Return Bond investors are not obligated to take an issuer’s bond and hold it until maturity. The return on a bond or asset over the period in which it was held is called the holding period return (HPR). There is an active secondary market for bonds.