Consider two bonds a 10-year premium bond with a coupon rate higher than its required rate of

Question:

Consider two bonds a 10-year premium bond with a rate higher than its required rate of return and a zero bond that pays only a lump sum payment after 10 years with no interest over its life. Which do you think would have more interest rate risk— that is, which bond’s price would change by a larger amount for given changes in interest rates? Explain your answer.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...