Question: 3. (18 points) Duration is defined as the weighted average time to maturity of a financial instrument. (a) (4 pts) When does duration become an

3. (18 points) Duration is defined as the weighted average time to maturity of a financial instrument. (a) (4 pts) When does duration become an important tool in the analysis of the financial assets and liabilities on a balance sheet? (b) (9 pts) Explain how duration, price and interest rate risk are related in three different cases for bonds (1.1) pure discount bonds (5.2) coupon bonds with the same maturity and different coupons rates (b.3) coupon bonds with similar coupon rates but different maturities. (c) (5 pts) With respect to potential bank balance sheet risk, how can the knowledge of duration can help protect against interest rate risk

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