Bond 1 is a 5-year annual bond with a face value of $1,000, a coupon rate of 8%, and a yield to maturity of 7%. Bond 2 is a 20-year zero-coupon bond with a face value of $1,000 and an annually compounded yield to maturity of 4%.

7. (1 point) What is the Macaulay duration, D_mac, of Bond 1?

8. (1 point) Suppose you form a portfolio using Bond 1 and Bond 2. How many contracts of Bond 2 are necessary to hedge this portfolio from interest rate risk (immunize the portfolio)?