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Jenny's son is planning on starting college in 5 years, and Jenny is planning on investing in bonds today to help him pay for his
Jenny's son is planning on starting college in 5 years, and Jenny is planning on investing in bonds today to help him pay for his tuition when he starts college. She is choosing between two bonds. Bond A has a YTM of 10%, and a coupon rate of 8%, and 5 years until maturity. Bond B has a YTM of 9%, a coupon rate of 16%, and 7 years until maturity. Both have a par value of $1000 and annual coupon payments. Jenny wants her investment to have zero interest rate risk. Which bond should she purchase? Why?
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