You must invest $100,000 and the bonds listed below from A to E are the only investments available today (assume that it is possible to buy a fraction of a bond in order to invest the full $100,000 for example it is possible to buy 119.41 of bond E). Assume all these bonds have the same yield-to-maturity (6%) and coupons are paid semiannually:

A. A bond with 2 years to maturity and a 6% coupon rate.

B A bond with 2 years to maturity and an 8% coupon rate.

C. A bond with 3 years to maturity and a 5% coupon rate.

D. A bond with 3 years to maturity and a 6% coupon rate.

E. A bond with 3 years to maturity and a zero coupon rate.

(a) If you want to profit from an unexpected decrease in market interest rates, which bond should you purchase?1

(b) What is the duration (in years) of the bond you chose in part (a)?

(c) Which bond should you purchase if you want to minimize interest rate risk?

(d ) What is the duration (in years) of the bond you chose in part (c)?