Which of the two bonds listed in problem #1 should you choose for your 5-year investment horizon to duration match to ensure your 5% annual compound return? Explain why. (Assume the same default risk for each bond.)

Question

Quizplus · Accepted Answer

The Answer is Choose Bond 2 with the duration of 5 years equal to your 5-year investment horizon. By duration matching, your investment will be immunized against interest rate risk to achieve the desired 4% annual compound yield if the zero coupon bond is held to maturity.

Which of the Two Bonds Listed in Problem #1 Should