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5) Bond A is a 10-year, 8 percent annual coupon bond with a $1,000 par value. Bond B is a 10-year, 6 percent annual coupon

5) Bond A is a 10-year, 8 percent annual coupon bond with a $1,000 par value. Bond B is a 10-year, 6 percent annual coupon bond with a $1,000 par value. Both bonds currently have a yield to maturity of 4 percent. Which of the following statements is correct if the market yield decreases to 2 percent?

  1. Bond A will increase in value by a greater percentage than Bond B.
  2. Bond B will increase in value by a greater percentage than Bond A.
  3. Both bonds would decrease in value by 8.27 percent.
  4. Bond B will decrease in value by a greater percentage than Bond A.
  5. Both bonds will increase in value by 8.27 percent.

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