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:

Management

The process of planning, organizing, directing, and controlling resources effectively to achieve desired objectives.

Growth

The process of increasing in size, magnitude, or complexity, often used in reference to personal development, economic expansion, or biological increase.

Competence Stage

A phase in skill acquisition where individuals have gained enough knowledge and ability to perform certain tasks reliably, but not yet effortlessly.

Complacency

A feeling of smug or uncritical satisfaction with oneself or one’s achievements, often leading to a lack of effort or creativity.