Money market investments typically have what compared to bonds regarding price volatility?

• A. Greater price volatility
• B. Less price volatility
• C. Similar price volatility
• D. No price volatility

Answer: (B)

Money market investments have much less price movement than bonds because of their extremely short maturities and high credit quality. With maturities typically under a year, their duration is very low, so changes in interest rates have little time to impact their price. They trade near par and are highly liquid, which further cushions price fluctuations. In contrast, longer-term bonds have higher duration and are more sensitive to interest-rate shifts, causing greater price volatility. So, they exhibit less price volatility than bonds.