Interest Rate risk?

Question

Company A has out standing Rs.1,000 par value bonds with maturity period of 15 years from now and Company B has outstanding Rs.500 par value bonds with maturity period of less than one year from now.
Both the bonds have coupon rates of 10% p.a, and the interest is paid semi-annually on both the bonds.
Explain that which company’s bonds would have high interest rate risk and why.

Answer 1

The interest rate risk is greater with the longer maturity bond. A short term bond, especially one of less than a year has very little interest rate risk. The longer the term of a bond the greater the interest rate risk. This is because there is no certainty of what interest rates might be in the future. If interest rates were to increase by 500 basis points, the value of the 15 year bond would drop significantly. The value of the 1 year bond would also drop but much, much less.

Answer 2

From this data it is difficult to say which is more riskier. Usually you don't call it interest rate risk, one calls it risk of default. This if figured out by other data than the one you have provided. Both has no risk as it looks since they both seems to be doing good an assumption I make since you haven't said anything about their liability ratios. You have to know the times interest rates earned, fixed charge coverage etc; to know how the liability of the company is handled which is not given. Just maturity alone one cannot figure out risk of default. If the sales are stagnant and the interest coverage is low then risk of default will be high which cannot be infered from what is given.
The fault with the answer below is these are corporate bonds you are talking about. The interest rates won't change like Government Bonds. So beware of that answer. You might ask me why I said so. Ther reason is though the corporate bonds can be traded in exchages, once you hold onto a bond there is not interest rate risk other than default risk since it is like a contractual interest rate like that of a CD. If you want to hold it till maturity which is what is intended in the question, then you will get the full principal payment back with the set whole interest rate paid to you annually, semi annually or quarterly.