1. In the spreadsheet below, create a Data Table in which the duration is computed as a function of the coupon rate (coupon = 0%, 1%…11%). Comment on the relation between coupon rate and duration
–> answer to this is attached
2. What is the effect on a bond’s duration of increasing the bond’s maturity? As in the previous example, use a numerical example and plot the answer. Note that as N–> Infinity, the bond becomes a consol (a bond that has no repayment of principal but an infinite stream of coupon payments). The duration of a consol is given by (1+YTM)/YTM. Show that your numerical answers converge to this formula
– Formulas must be shown in excel.
-Chegg may be a good reference. Was unable to utilize for problem 2. Problem 1 is correct and needs to be used to do Problem 2.
Let me know of you have any questions