. Two bonds are available for purchase in the financial markets. The first bond is a two-year, $1000 bond that pays an annual coupon of 10 per cent. The second bond is a two-year, $1000, zero-coupon bond.

(a) What is the duration of the coupon bond if the current yield-to-maturity (R) is 8 per cent? 10 per cent? 12 per cent?

(b) How does the change in the current yield to maturity affect the duration of this coupon bond? Increasing the yield to maturity decreases the duration of the bond.

(c) Calculate the duration of the zero-coupon bond with a yield to maturity of 8 per cent, 10 per cent and 12 per cent.