Suppose that you purchase a bond that matures in five years and pays a 13.76 percent annual coupon rate. The bond is priced to yield 10 percent. (LG 3-6)

a. Show that the duration is equal to four years.

b. Show that if interest rates rise to 11 percent next year and your investment horizon is four years from today, you will still earn a 10 percent yield on your investment.

AppendixLO1