Question
You have $100,000 that you are looking to invest in bonds and the yield curve is currently flat at 4%. You can choose between investing
You have $100,000 that you are looking to invest in bonds and the yield curve is currently flat at 4%. You can choose between investing in the following 5 bonds: 1) 5 year zero coupon bond 2) 5 year 10% coupon rate bond 3) 20 year zero coupon bond 4) 20 year 10% coupon rate bond You will invest all $100,000 of your money into whichever one bond you select. a) If you expect that interest rates are going to decrease, which one bond should you choose? Why? b) If you expect that interest rates are going to increase, which one bond should you choose? Why?
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