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

question 87

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 by the same proportion.
• D) Neither bond will decrease in price, but their yields will increase.

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