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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?
- Bond A will increase in value by a greater percentage than Bond B.
- Bond B will increase in value by a greater percentage than Bond A.
- Both bonds would decrease in value by 8.27 percent.
- Bond B will decrease in value by a greater percentage than Bond A.
- Both bonds will increase in value by 8.27 percent.
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