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Consider two bonds, I and K. Each pays a coupon of 4% quarterly. Bond I will mature in 5 years whereas bond K will come

Consider two bonds, I and K. Each pays a coupon of 4% quarterly. Bond I will mature in 5 years whereas bond K will come to maturity in 30 years. If market interest rates go up from 1% to 2%, which one of the followings will happen?

a.

Both bonds will decrease in value, but bond K will decrease more than bond I proportionally.

b.

Both bonds will increase in value, but bond I will increase more than bond K proportionally.

c.

Both bonds will decrease in value, but bond I will decrease more than bond K proportionally.

d.

Both bonds will increase in value, but bond K will increase more than bond I proportionally.

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