Question

38. The duration of a $1000, 2-year, 6% coupon bond (interest paid annually)

            is _____ when market rates are 8%. The 8% PV factors are: .9259 1 YR; .8573 2 YR

                        a. 2.036           b. 1.971           c. 1.94             d. 1.856

39. As bond maturity _________, so does the _________ and ________.

            a. decreases; coupon rate; market price.

            b. decreases; duration; face value.

            c. increases; duration; price variability.

            d. increases; market price; coupon rate.

Answer 1

1.

Macaulay Duration Тхс ΝxM (1 + Y)' + (1 + YJN Price

=(1*6%*1000*0.9259+2*(1000+6%*1000)*0.8573)/(6%*1000*0.9259+(1000+6%*1000)*0.8573)
=1.94238882

2.

c. increases; duration; price variability.

Duration is directly related to maturity
Price variability is directly related to duration