1.Suppose you purchase a five-year, 15 per cent coupon bond (paid annually) that is priced to yield 9 per cent. The face value of the bond is $1000.

Show that the duration of this bond is equal to four years.

Show that if interest rates rise to 10 per cent within the next year and your investment horizon is four years from today, you will still earn a 9 per cent yield on your investment.

Show that a 9 per cent yield also will be earned if interest rates fall next year to 8 per cent. LO 6.1, 6.4