[1 mark]- 1 of 3 ID: FMTH.DI.D.01.0020b

A portfolio consists of the following two investments:

• a bond with face value of $100.00 paying annual coupons of 5% maturing in 5 years
• an annuity with payments of $40.00 at the end of each year for 5 years

The portfolio is comprised of 26% bonds and 74% annuities.

The term structure is flat and the current yield is 10% pa effective.

Calculate the duration (D) of the portfolio. Give your answer to 2 decimal places.

D = __ years