An Investor Holds Two Bonds, One with 5 Years Until

question 86

Multiple Choice

An investor holds two bonds, one with 5 years until maturity and the other with 20 years until maturity. Which of the following is more likely if interest rates suddenly increase by 2%?

• A) The 5-year bond will decrease more in price.
• B) The 20-year bond will decrease more in price.
• C) Both bonds will decrease in price similarly.
• D)Neither bond will decrease in price, but their yields will increase.

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Definitions:

Unconscious Wishes

Desires or motives that an individual is not fully aware of but that influence emotions and behavior, a concept often discussed in psychoanalytic theory.

Sigmund Freud

A neurologist from Austria who is recognized as the pioneer of psychoanalysis, which involves treating mental disorders by engaging in conversation between the psychoanalyst and the patient.

Mind's Defenses

Psychological mechanisms or strategies employed by the unconscious mind to protect itself from anxiety, social sanctions, or to provide a refuge from a situation with which one cannot currently cope.

Humanistic Psychologists

Psychologists who focus on the study of the whole person, emphasizing personal growth and the concept of self-actualization.