Market rate decreases-annual coupon bond

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Reference no: EM131010374

Mason’s has a 5-year, 8 percent annual coupon bond with a $1,000 par value. Dixon’s has a 10-year, 8 percent annual coupon bond with a $1,000 par value. Both bonds currently have a yield to maturity of 8 percent. Which one of the following statements is correct if the market rate decreases to 7 percent?

Dixon’s bond will increase in value by 6.87 percent.

Both bonds will decrease in value by 4.10 percent.

Mason’s bond will increase in value by $41.

Dixon’s bond will increase in value by 4.61 percent.

Mason’s bond will increase in value by $52.10.

Reference no: EM131010374

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