1. Jonah Ryan is a low ranking member of the White House staff. Hes a little nervous about his job prospects after the current election cycle, so hed like to increase his savings and invest some more of his money. Jonah estimates that he should be able to generate some funds from his new website, but he would like to invest in something less risky just in case Ryantology doesnt generate enough ad revenue. He has come to you for some expert advice.

1. You tell Jonah the best choice for him is a corporate bond with par value of $1000, annual coupons of 3.5% and four years to maturity. From the yield curve, you determine the following spot rates are appropriate for cash flows of this level of risk.

Time (Years)	1	2	3	4
Rate (%)	3.50	4.00	4.50	4.75

How much should Jonah pay for the bond?

This seems like a reasonable price to Jonah, but he wants to know what kind of return he can expect. You tell him that depends on how long he holds the bond.

2. What is the yield to maturity?

3. Based on your interpretation of the yield curve, you anticipate that interest rates over the next four years will be 3.5%, 5%, 6%, and 6%. If your analysis is correct, what realized compound return will Jonah achieve on the bond if he holds it until maturity?
4. Jonah thinks he might sell the bond next year if he can get a job with the next administration. Suppose the yield to maturity on the bond increases by 50 basis points next year. If Jonah decides to sell the bond in one year, what is his holding period return?

5. All of these different return scenarios are very confusing to Jonah, and hes getting frustrated with your analysis. He would like one summary measure that tells him the interest rate risk of his investment that accounts for the coupon rate, time to maturity, and yield to maturity of the bond. That will help him decide whether or not to purchase the bond.

Calculate the duration for the bond.