Figure 11.2 illustrates a 9% coupon, 8-year maturity bond with annual payments, selling at a yield to maturity of 10%. Confirm using Spreadsheet 11.2 that the bond’s duration is 5.97 years. What would its duration be if the bond paid its coupon semiannually? Why intuitively does duration fall?

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Cash flow 1,200- 1,100- 1,000- 900- 800- 700- 600- 500- 400- 300- 200- 100- 0 2 3 Bond duration = 5.97 years Year 5 6 7 8 FIGURE 11.2 Cash flows paid by 9% coupon, annual payment bond with 8-year maturity and 10% yield to maturity. The height of each bar is the total of interest and principal. The shaded portion of each bar is the present value of that cash flow. The fulcrum point is Macaulay's duration, the weighted average of the time until each payment.