Question: Please answer both questions for Upvote. Ques 1 a) Explain the concept of duration. b) Why is duration is thought of as a measure of

Please answer both questions for Upvote.

Ques 1

a) Explain the concept of duration.

b) Why is duration is thought of as a measure of risk?

c) If duration is a measure of risk, what would you do if interest rates are expected to rise (assume you want to be fully invested in bonds). Would you buy bonds with shorter or longer durations?

Ques 2

Assume an inflation protection bond (TIPS) with 30 years remaining to expiration carries a coupon rate of 4.25% and is sold for $900. The par value of the bond is $1,000. Complete the table below and show all calculations in each cell.

YR	Inflation	Interest Received	Accrued Principal value	Interest earned due to inflation	Total return	ROR (Nominal)	Real ROR
1	3.0%
2	2%
3	1 %
4	Minus 1% It is a negative rate of inflation

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