Bonus question : If the investment horizon is equal to the Macaulay duration of the bond , the investor is hedged against interest rate risk…

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Using the following bond to show what if interest rate increase 2% between fist and second coupon payment dates, the investor is not hedged against interest rate risk:

Bonus question : ” If the investment horizon is equal to the Macaulay duration of the bond , the investor ishedged against interest rate risk ” . However , the above statement is only true if interest rates only change beforefirst coupon payment is received .Using the following bond to show that if interest rate increase 2 % between first and second coupon paymentdates , the investor is not hedged against interest rate risk :A four – year 33. 7% annual coupon paying bond is priced at 170. 4255 . The bond’s Macaulay duration is 3 . ( 5)points )

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