Do debt instruments with which maturity face more price fluctuations?

In Finance MCQs, debt instruments with long-term maturity face more price fluctuations compared to short-term debt instruments. This happens mainly because long-term securities are more sensitive to changes in interest rates. Even a small change in interest rates can cause a significant change in the price of long-term debt instruments.

Debt instruments include bonds, debentures, and other fixed-income securities. These instruments pay fixed interest over a certain period until maturity. When the maturity period is long, the future interest payments and principal repayment are spread over many years. Because of this, any change in market interest rates greatly affects the present value of these future cash flows. As a result, prices of long-term debt instruments fluctuate more.

In contrast, short-term maturity debt instruments have a shorter life, so interest rate changes do not affect their prices significantly. Their cash flows are received sooner, which reduces uncertainty and price volatility. This is why short-term instruments are considered less risky in terms of price fluctuations. In Finance MCQs, this comparison between short-term and long-term maturity is very commonly tested.

Another important factor is interest rate risk. Long-term debt instruments carry higher interest rate risk because investors are exposed to market changes for a longer period. If interest rates rise, the prices of long-term bonds fall more sharply than short-term bonds. Similarly, when interest rates fall, long-term bonds increase more in value. This higher sensitivity explains the greater price fluctuations.

The other options given in the question are incorrect. Primary maturity and capital maturity are not standard terms used in finance or Accounting MCQs. Short-term maturity instruments experience less price fluctuation and are therefore not the correct answer.