Consider two bonds, a 10-year premium bond with a coupon rate higher than its required rate of return and a zero coupon 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. (LG 20-1)

AppendixLO1