An Investor Holds Two Bonds,one with 5 Years Until Maturity

question 83

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 yields will increase.

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Definitions:

Complex Task

A task that involves multiple steps, requires a significant amount of cognitive processing, and often necessitates the integration of different skills and knowledge.

Breaks In Between

Short periods of rest or interruption in activities to improve focus and productivity.

Routine Expertise

The proficiency gained in performing tasks or activities that are regular and repetitive, leading to efficiency and consistency.

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Observable actions or reactions of an individual in particular situations, distinguished by their precision and context.