Electrical utility is offering a security, known as zero-coupon bond, for sale. The terms of the security are investors pay $2,337.57 today to purchase the security, and the utility will pay the owner of the security $10,000 in ten years’ time. The government is offering a similar security; except that this Security will pay $500 each year for the duration of the security and in the last year will pay the full $10,000 plus the $500. The government is selling this security, known as a coupon bond, for $4,787.76. Which one would you prefer?
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