Problem
An insurance company is analyzing three bonds and is using duration as the measure of interest rate risk. All three bonds trade at a yield to maturity of 10 percent, have $10,000 par values, and have five years to maturity. The bonds differ only in the amount of annual coupon interest they pay: 8, 10, and 12 percent.
a. What is the duration for each five-year bond?
b. What is the relationship between duration and the amount of coupon interest that is paid?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.