Two 10 year bonds are being considered for an investment that may have to be liquidated before the maturity of the bonds The first bond is a 10 year premium bond with a coupon rate higher than its required rate of return, and the second bond is a zero coupon bond that pays only a lump sum payment a...

The zerocoupon bond would have more interest rate risk Because the entire cash flow ...

Two 10-year bonds are being considered for an investment that may have to be liquidated before the

Question:

Two 10-year bonds are being considered for an investment that may have to be liquidated before the of the bonds. The first bond is a 10-year premium bond with a rate higher than its required rate of return, and the second bond is a zero-coupon bond that pays only a lump-sum payment after 10 years with no interest over its life. Which bond would have more interest rate risk? That is, which bond’s price would change by a larger amount for a given change in interest rates? Explain your answer.
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...