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You have a choice between a four-year zero coupon bond and five-year 10% coupon bond. Both bonds are issued by the US government and therefore
You have a choice between a four-year zero coupon bond and five-year 10% coupon bond. Both bonds are issued by the US government and therefore risk of default is assumed to be zero and both promise 5% YTM. Your friend tells you that you should watch out for interest rate risk and therefore four-year bonds would be better. Do you agree? Provide your reasoning.
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