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c. (not related to parts a and b). Suppose a listed company issued two corporate bonds in the market: Bond D and Bond E. Both
c. (not related to parts a and b). Suppose a listed company issued two corporate bonds in the market: Bond D and Bond E. Both bonds have a par value of $1000 and receive a AAA credit rating. Bond D is a 20-year 8% coupon bond paying annual coupons. Bond E share these same bond features (i.e., coupon rates, coupon frequency, par value, and maturity), except that it is callable in 2 years with a call price that is 110 percent of its par value. Both bonds are currently trading at a price very close to the par value. Suppose you expect that market interest rates for all maturities will change to 2% in two years and will remain at that level over the following 20 years. Explain which one of the two bonds you would expect to experience a larger price change (in percentage terms) in 2 years, assuming your projection of the market interest rate is correct? Explain in words without any calculation
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