Question: b) Exercise on risk management: duration. A bond makes 10 annual coupon payments, and it matures in 2 years. The face value of the bond

b) Exercise on risk management: duration. A bond makes 10 annual

b) Exercise on risk management: duration. A bond makes 10 annual coupon payments, and it matures in 2 years. The face value of the bond is 100 while the current market value is 85. Please, solve the following points: 1. Please, find the Macaulay duration measure for the coupon bond (5 marks) 2. Consider a 5-year maturity zero-coupon bond that is currently traded at 92. Please, find the Macaulay duration measure for this bond and discuss how it compares to the duration of the coupon bond found in the previous point. (5 marks) 3. Discuss the strength and weakness of the duration and GAP analysis as tools to conduct risk-management. (5 marks) Total for b: 15 marks Total for SECTION B: 40 marks

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