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% , have maturity of 5 years and have $10,000 par values. The bonds differ only in the amount of annual coupon interest they pay: 8, 10, and 12%
a) What is the duration for each of the bonds?
b) What is the relationship between duration and the amount of coupon interest that is paid?
An insurance company is analyzing three bonds and is using duration as the measure of interest rate risk.
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