a. Use a spreadsheet to calculate the durations of the two bonds in Spreadsheet 11.1 if the interest rate increases to 12%. Why does the duration of the coupon bond fall while that of the zero remains unchanged? (Hint: Examine what happens to the weights computed in column E.)

b. Use the same spreadsheet to calculate the duration of the coupon bond if the coupon were 12% instead of 8%. Explain why the duration is lower. (Again, start by looking at column E.)

LO.1