Problem $13-08$

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Problem $13-08$

Compute the Macaulay duration under the following conditions:

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

years

b$.$ A bond with a four$-$year term to maturity, a $9\%$ coupon $($annual payments$),$ and a market yield of $14\%.$ Do not round intermediate Calculations. Round your answer to two decimal places. You may use Appendix C to answer the questions. Assume $$1,000$ par value. years

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 $1.$ If the duration of the portfolio from Part a is equal to the desired investment horizon the portfolio from Part $b$ is select$-$ perfectly immunized.