Q2

a.Calculate both Macaulay and modified durations of the 8-year, 8.5% coupon bond given a flat yield curve at 10%. (4 marks)

b.Explain why zero coupon bonds have a higher Macaulay Duration than coupon paying bonds of the same return. (2 marks)

c.Explain the differences between the following:

(i). a broker and dealer.

(ii). liquidity and marketability