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Dumb and Dumber are 2 brothers. Dumb purchased, for a $100 price, a $100 face value bond that pays interest annually at 10%. The principal
Dumb and Dumber are 2 brothers. Dumb purchased, for a $100 price, a $100 face value bond that pays interest annually at 10%. The principal is due and payable at the end of 5 years. Dumber purchased, for a $100 price, a deeply discounted zero coupon bond that pays nothing annually, but that has a final lump sum payment of $161.05 at the end of 5 years. You have already calculated the YTM (or IRR) for both bonds. Assume both bonds are U.S. treasury backed with NO credit risk. What other risk exists? Explain such risks.
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