Essay
a.Define the duration of a bond.Why is duration often thought of as a measure of risk for a bond?
b.What is the duration of a two-year zero-coupon bond? How about a two year 10% coupon bond (one coupon per year)?
c.How does a given bond's duration change when interest rates in the market rise?
d.Explain how duration is used in setting up an immunization strategy.
a. Define the duration of a bond. Why is duration often thought of as a measure of risk for a bond?
b. What is the duration of a two-year zero-coupon bond? How about a two year 10% coupon bond (one coupon per year)?
c. How does a given bond's duration change when interest rates in the market rise?
d. Explain how duration is used in setting up an immunization strategy.
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