18

A large company has two outstanding bonds with the same features, including maturity, except for the coupon rate. Bond A is paying 7.8%, while bond B is paying 8.6%. If the market interest rate increases by 1.5%:

Select one:

a. Both bond A and bond B prices will move by the same amount.

b. Bond B's price will increase more.

c. Bond B will have the greater fall in price.

d. Bond A's price will increase more.

e. Bond A will have the greater fall in price.