1. If you are borrower, which would you prefer to occur during the life of your loan?
A. A level of inflation that is lower than anticipated at the outlest of your loan.
B. A level of inflation that is equal to the anticipated at the outlest of your loan.
C. A level of inflation that is higher than anticipated at the outlest of your loan.
D. No inflation at all
Please explain
2. Consider a five-year $1,000 face value, Treasury bond with a 10 yield to maturity selling at par.
A) Calculate the duration if the semiannual coupon is 10%
B) Calculate the duration if the semiannual coupon is 12%
C) Calculate the duration if the semiannual coupon is 14%
D) Plot the relationship between coupon interest rate (x-axis) and the duration (y-axis). Be sure to label the y-axis, x-axis, and chart title
In your report, identify and comment on the relationship between duration and coupon interest rate.