Question: 1a. Consider a two-year maturity floating-rate bond. Its coupon reset formula is LIBOR+2%. Its discount rate is LIBOR+5%. The discount rate of fixed cash flows

1a. Consider a two-year maturity floating-rate bond. Its coupon reset formula is LIBOR+2%. Its discount rate is LIBOR+5%. The discount rate of fixed cash flows is 8%. What is the Macaulay duration of this bond? Assume annual coupon payment.

a. 1 b. 0.90 c. 0.97 d. 0.93

1b. Consider a two-year maturity floating rate bond. Its coupon reset formula is LIBOR+2%. Its discount rate is LIBOR+5%. The discount rate of fixed cash flows is 8%. What is the convexity of this bond?

a. 1.62 b. 6.00 c. 5.14 d. 5.56

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