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Garneau Inc. has two 4.5% coupon bonds outstanding. Each of the bonds pays interest annually. Bond A has 15 years to maturity and bond B

Garneau Inc. has two 4.5% coupon bonds outstanding. Each of the bonds pays interest annually. Bond A has 15 years to maturity and bond B has 30 years to maturity. The current market rate of return is 3%. What will happen if the market rate of return decreases to 2%?

a.

The percentage change in the price of bond A will be less than the percentage change price in bond B.
b.

The percentage change in the price of bond A will be greater than the percentage change price in bond B.
c.

The price of the bonds will not change as the market rate of return has no effect on the value of the bond.
d.

The percentage change in the price of bond A will be the same as the percentage change price in bond B.

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