Question
Assuming the market discount rate is 4% annually:A six-year maturity zero coupon note with a face value of $1,000.A seven-year maturity note paying 11% annually.
Assuming the market discount rate is 4% annually:A six-year maturity zero coupon note with a face value of $1,000.A seven-year maturity note paying 11% annually.
Which note is riskier according to their duration?
Does this result surprise you? Give a common-sense explanation of this result.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To determine which note is riskier according to their duration we need to calculate the duration of each note Duration is a measure of a bonds sensiti...
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Step: 2
Step: 3
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Financial Accounting an introduction to concepts, methods and uses
Authors: Clyde P. Stickney, Roman L. Weil, Katherine Schipper, Jennifer Francis
13th Edition
978-0538776080, 324651147, 538776080, 9780324651140, 978-0324789003
