Suppose that you purchase a bond that matures in five years and pays a 13.76 percent coupon

Question:

Suppose that you purchase a bond that matures in five years and pays a 13.76 percent rate. The bond is priced to yield 10 percent.
a. Show that the duration is equal to four years.
b. Show that if interest rates rise to 11 percent next year and your investment horizon is four years from today, you will still earn a 10 percent yield on your investment.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...