Write the Excel function and arguments for DURATION of a par value 5 year, 10% coupon bond. Discount rate is also 10%.

1	2	3	4	5
Year	Coupon 10%	PV	% PV of Total Value	Weighted Maturity
1			PV/$1000	(1)*(4)
2
3
4
				Duration=

1. Use the table above to estimate the actual duration.

2. Interpret the results. What does duration tell you?

3. Based on your estimated duration, what are the effect on the bonds price if interest rates go from 10% to 11%. Explain.

   % [( )/ 1+]

4. If Duration is 2 years, how does affect the price of the bond? (Re-estimate the change in price with a 2-year duration in the formula above).

5. Why are your results different?