You buy a 4-year certificate of deposit, a 4-year par bond, and finance a 4-year consumer loan. Assume all these types of investment has 8% yield or interest rate. Say you have $8,000.
1. Assuming all types of lending compound at annual frequency, calculate the duration of each method of investment.
2. If interest rates of all time horizon increase by the same amount, say 2%, value of which type of investment loses the most?