What is a key characteristic of a bond with a high duration?

A bond with a high duration is characterized by its increased sensitivity to interest rate changes, which directly relates to its price sensitivity. Duration measures how long it takes for a bond's cash flows to repay its price, and it serves as an indicator of interest rate risk.

When interest rates rise, the present value of a bond's future cash flows decreases, leading to a decline in its market price. A bond with a high duration will experience a more significant price drop in response to rising interest rates compared to a bond with a lower duration. This heightened sensitivity indicates that investors must be cautious when interest rates fluctuate, as the potential for capital loss is greater with a higher duration bond.

Conversely, bonds with low duration tend to have more stable prices because their cash flows are less affected by changes in interest rates. This relationship between duration and price sensitivity is crucial for investors assessing interest rate risk in their portfolios. Thus, the correct answer highlights the importance of understanding duration when evaluating bond investments.