Twenty-five years ago, the U.S. government issued thirty-year bonds with a coupon rate of about 8 percent. Five years ago, the U.S. government sold ten-year bonds with a coupon rate of about 5 percent.
Suppose that the current coupon rate on newly issued five-year Treasury bonds is 2.5 percent.
For an investor seeking a low-risk investment maturing in five years, do the bonds issued twenty-five years ago with a much higher coupon rate provide a more attractive return than the new five-year bonds? What about the ten-year bonds issued five years ago?