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Rate of Return and Interest Rates (cont’d) The more distant a bond’s maturity, the lower the rate of return the occurs as a result of an increase in the interest rate Even if a bond has a substantial initial interest rate, its return can be negative if interest rates rise Table 2 One-Year Returns on Different-Maturity 10%-Coupon-Rate Bonds When Interest Rates Rise from 10% to 20% Interest-Rate Risk Prices and returns for long-term bonds are more volatile than those for shorter-term bonds There is no interest-rate risk for any bond whose time to maturity matches the holding period Real and No