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Consider two bonds, a 5-year premium bond with a coupon rate higher than its required rate of return and a zero-coupon bond that pays only
Consider two bonds, a 5-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 5 years with no interest over its life. Which do you think would have more interest rate risk? (Hint: which bonds price would change by a larger amount for given changes in interest rates?)
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