Assume that a 10-year bond has a 12 percent annual coupon, while a 15-year bond has an 8 percent annual coupon. The yield curve is flat; all bonds have a 10 percent yield to maturity.

The following are statements about these bonds:

I. The 10-year bond is selling at a discount, while the 15-year bond is selling at a premium.

II. The 10-year bond is selling at a premium, while the 15-year bond is selling at par.

III. If interest rates decline, the price of both bonds will increase, but the 15-year bond will have a larger percentage increase in price.

IV. If the yield to maturity on both bonds remains at 10 percent over the next year, the price of the 10-year bond will increase, but the price of the 15-year bond will fall.

V. If interest rates decline, the price of both bonds will increase, but the 10-year bond will have a larger percentage increase in price.

Which of the following is most correct about the statements above?

Select one:

a. Statement II is correct.

b. Statement III is correct.

c. Statement I is correct.

d. Statement V is correct.

e. Statements II and III are correct.

f. Statement IV is correct.