1.Two bonds are available for purchase in the financial markets. The first bond is a two-year, $1000 bond that pays an annual coupon of 10 per cent. The second bond is a two-year, $1000, zero-coupon bond.

What is the duration of the coupon bond if the current yield to maturity (R ) is 8 per cent? 10 per cent? 12 per cent? (Hint: You may wish to create a spreadsheet program to assist in the calculations.)

How does the change in the current yield to maturity affect the duration of this coupon bond?

Calculate the duration of the zero-coupon bond with a yield to maturity of 8 per cent, 10 per cent, and 12 per cent.

How does the change in the yield to maturity affect the duration of the zero-coupon bond?
Why does the change in the yield to maturity affect the coupon bond differently to the way it affects the zero-coupon bond? LO 6.1, 6.2