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Suppose interest rates increase from 8 percent to 9 percent. Which bond will suffer the greater percentage decline in price: a 30-year bond paying annual
Suppose interest rates increase from 8 percent to 9 percent. Which bond will suffer the greater percentage decline in price: a 30-year bond paying annual coupons of 8 percent, or a 30-year zero coupon bond? Can you explain intuitively why the zero exhibits greater interest rate risk even though it has the same maturity as the coupon bond?
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