Explain Why Bond Prices Fluctuate in Response to Changing Interest

question 85

Essay

Explain why bond prices fluctuate in response to changing interest rates. What adverse effect might occur if bond prices remain fixed prior to their maturity?

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Definitions:

Habituation

The psychological process of becoming accustomed to a stimulus after repeated exposure, leading to a decrease in response.

Stimulus Generalization

The psychological process by which a response is elicited by stimuli similar to the original stimulus to which the response was conditioned.

Classical Conditioning

A conditioning method in which repeated pairings of two stimuli lead to a response that, though originally elicited by the second stimulus, is eventually elicited by the first stimulus alone.

Little Albert

An early experiment in psychology by John B. Watson and Rosalie Rayner that demonstrated how emotional responses, such as fear, could be conditioned in humans.