FINRA Practice Exam 2025 – 400 Free Practice Questions to Pass the Exam

The stability in the value of a debt portfolio is greatest when the maturities of the securities are short. This is because shorter-term securities tend to have less interest rate risk compared to longer-term securities.

When interest rates rise, the market values of existing long-term bonds typically decline more sharply because they are locked into their lower interest payments for a longer duration. Conversely, shorter-term bonds are less affected by fluctuations in interest rates, allowing them to mature sooner, at which point investors can reinvest their funds at the new, potentially higher rates.

Additionally, shorter maturities mean that the bondholder receives principal payments back sooner, reducing exposure to the uncertainties surrounding future interest rate movements and inflation. This results in a more stable portfolio value, as short-term securities are less volatile than their long-term counterparts.

In summary, the shorter the maturity of the securities in a debt portfolio, the less sensitive the portfolio is to changes in interest rates, thus leading to greater stability in its value.