3. Your colleague is constructing a table to calculate the duration of 5 year annual coupon paying bonds issued by American Expresso at an effective annual yield of 6% pa. The bonds have a face value of $160,000 and an effective annual coupon rate of 13% pa. Unfortunately your colleague is unwell and has taken the day off work. You have been asked to complete the calculations to present at a meeting.

a) Complete the table for your colleague. Give your answers to 4 decimal places.

Cash flow	Amount ($)	Present value of the cash flow (PVCF)	Weight (PVCF/price)
1	20,800	19,622.6415	0.0947
2	20,800	18,511.9260	0.0894
3	20,800	17,464.0811	0.0843
4	20,800	16,475.5482	0.0795
5

b) Calculate the duration (D) of the American Expresso bonds using the rounded values in the table. Give your answer in years to 2 decimal places.

D = ....years

c) If the yield were to decrease immediately, the duration of the bonds would:

- increase?

- decrease?

- remain unchanged?