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ond A has 10 years until maturity, an annual coupon of 1% and is currently selling for $100. At the same time, Bond B has
ond A has 10 years until maturity, an annual coupon of 1% and is currently selling for $100. At the same time, Bond B has also 10 years until maturity, an annual coupon of 2% and is currently selling for $99. Both bonds are free of default risk, have a face value of $100 and have no embedded options. Which of the following claims about the relative values of the two bonds is correct: (a) Both bonds are fairly valued at their current market prices. (b) Bond A is overvalued while Bond B is undervalued. (c) Bond A is undervalued while Bond B is overvalued. (d) There is not enough information to make a determination
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