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If interest rates suddenly decrease, which of the two bond will likely experience the greater % increase in price? [I] 8% coupon, 20-year maturity discount

  1. If interest rates suddenly decrease, which of the two bond will likely experience the greater % increase in price? [I] 8% coupon, 20-year maturity discount bond [II] 8% coupon, 20-year maturity premium bond

    Bond I

    Bond II

    The % price decrease will be the same for the two bonds.

    Not enough information

2. Which of the statements must be true? For large changes in interest rates, duration will tend to _______. [I] underestimate the actual percentage increase in bond price when the yield falls [II] underestimate the actual percentage decrease in bond price when the yield rises

I only

II only

I and II

Neither statement are true

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