Question: Consider two annual coupon bonds, A and B, which both have exactly 10 years until maturity. The bond paid its most recent. Both bonds just

Consider two annual coupon bonds, A and B, which both have exactly 10 years until maturity. The bond paid its most recent. Both bonds just paid their most recent annual coupons, so the next coupon for both will paid in exactly one year.

Bond A has a coupon rate of 4% and a YTM of 5%. Bond B has a coupon rate of 9% and YTM of 6%.

  1. What is the duration of bonds A and B individually?
  2. Create a portfolio that is equally weighted between bonds A and B, and calculate the duration of the portfolio.
  3. How does the duration of the equal- weighted portfolio compare to the equal-weighted average of individual bond duration? Why?

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