An Investor Holds Two Bonds, One with Five Years Until

question 107

Multiple Choice

An investor holds two bonds, one with five years until maturity and the other with 20 years until maturity.Which of the following is more likely if interest rates suddenly decrease by 2 percent?

• A)The five-year bond will increase more in price
• B)The 20-year bond will increase more in price
• C)Both bonds will increase in price similarly
• D)Neither bond will increase in price, but yields will decrease

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Definitions:

Income Distribution

Refers to the way in which total income is shared among the members of a society.

Income Inequality

The uneven distribution of income within a population, leading to gaps between the wealthiest and the poorest individuals.

Income Distribution

The way in which total income is divided among the population or different groups within society, affecting economic inequality.

Developing Economies

Countries with a lower level of industrialization, less advanced technological infrastructure, and lower living standards relative to developed countries.