An Investor Holds Two Bonds, One with 5 Years Until

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.

Correct Answer:

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