An investor holding 20-year Treasury bonds is primarily exposed to which type of risk?

The investor holding 20-year Treasury bonds is primarily exposed to inflationary risk. This form of risk occurs because the purchasing power of the bond's future cash flows may be eroded by inflation over the long term. As the duration of the investment increases, like with a 20-year bond, the potential impact of inflation becomes more pronounced. If inflation rises significantly, the fixed interest payments from the bond may not keep pace with the increasing cost of goods and services, leading to a decrease in real return.

While other risks such as interest rate risk are also relevant (because bond prices generally fall when interest rates rise), the defining characteristic of holding a long-term bond like a 20-year Treasury is the concern regarding inflation over such an extended time frame. This makes inflationary risk the primary factor for investors in this scenario.