The picture above portrays the behavior of two measures of a bond's behavior over time (time is on the horizontal axis). The analyst who prepared the chart forgot to label the lines, and is asking for your help in identifying what each line represents. All she remembers is that the lines represent two of the following: premium amortization, interest accrued, carrying value of the bond, or the unamortized premium. Which of the following combinations to you propose to the analyst as being possibly correct:

a. The dashed line is the amortization of the premium and the solid line is the carrying value of the bond.

b. The dashed line is interest accrued and the solid line is the amortization of the premium.

c. The dashed line is the unamortized premium and the solid line is the interest accrued.

d. The dashed line is the interest accrued and the solid line is the carrying value of the bond.

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