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Consider the following bonds:
a. [7] What is the duration of a five-year bond with a 6.5 percent semiannual coupon if the yield to maturity (ytm) is 7.125%?

b. [3] What is the duration of a 20-year zero coupon bond with a yield to maturity of 7.625%

c. [2] You expect a sudden, but widely unanticipated, increase in the market rates of interest due to a change in position by the Federal Reserve. Would you rather be holding in your asset portfolio the bond from a. above (BOND A) or the zero from b. above (BOND B)? Which bond would you prefer, and why?

 

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