Problem $13-07$

Compute the Macaulay duration under the following conditions:

a$.$ A bond with a four$-$year term to maturity, a $9$ percent coupon $($annual payments$),$ and a market yield of $8$ percent. Do not round intermediate calculations. Round your answer to two decimal places. You may use Appendix C to answer the questions. Assume $\backslash (\backslash$$ $1,000\backslash )$ par value.

Duration: years

b$.$ A bond with a four$-$year term to maturity, a $9$ percent coupon $($annual payments$),$ and a market yield of $11$ percent. Do not round intermediate calculations. Round your answer to two decimal places. You may use Appendix $\backslash ($ C $\backslash )$ to answer the questions. Assume $\backslash (\backslash$$ $1,000\backslash )$ par value.

Duration:

c$.$ Compare your answers to parts $($a$)$ and $($b$),$ and discuss the implications of this for classical immunization.

As a market yield increases, the Macaulay duration $|.$ If the duration of the portfolio from part $($a$)$ is equal to the desired investment horizon the portfolio from part $($b$)$ is $|$ perfectly immunized.