a. Use a spreadsheet to calculate the durations of the two bonds in Spreadsheet 1 if the annual interest rate increases to 12%. Why does the duration of the coupon bond fall while that of the zero remains unchanged? (Examine what happens to the weights computed in column F.)

b. Use the same spreadsheet to calculate the duration of the coupon bond if the coupon were 12% instead of 8% and the semiannual interest rate is again 5%. Explain why duration is lower than in Spreadsheet. (Again, start by looking at columnF.)

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Time until Column (C) times Column (F) 0.0197 0.0376 0.0537 1.7741 1.8852 (Discount rate 5% per period)Weight 0.0395 0.0376 0.0358 Period | Cash Flow | (Years) 0.5 38.095 36.281 34.554 2.0 1040 Sum 964.540 1.0000 0.000 0.0000 0.0000 0.0000 10 B. Zero-coupon 0.5 0.0000 0.0000 0.000 822.702 822.702 2.0 1000 Sum 1.0000 2.0000 15 16 Semiannual int rate: 0.05 17 18 Weight Present value of each payment (column E) divided by the bond price