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Here are the details on 4 bonds.  Current market rates are 5.5%.  Which bond is would you buy...

Here are the details on 4 bonds.  Current market rates are 5.5%.  Which bond is would you buy and why?

Bond A            ABC Inc.  6%  10 Year  Annual Pay              Current Price   $1,045.69

Bond B            MLM Inc.  5.5% 6 Year Semi – Annual Pay  Current Price   $   998.40

Bond C            DEF Ltd.  4%  15 Year Quarterly Pay           Current Price   $   850.47

Bond D           TJB Ltd. 5.5%  10 Year Annual Pay              Current Price   $1,000.00

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Answer #1

Answer : Select Bond B

Interest risk increases as maturity increases. Bond B has lowest maturity so it has lowest interest rate risk.

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