Explain the concept of bond duration

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An Australian Commonwealth Government Security (CGS) has a maturity date of 15 March 2023. The CGS is paying a coupon of 6% and is priced at a yield of 4%. The CGS pays coupons semi-annually on the 15th of the relevant coupon payment month. The settlement date of the trade in this bond is 24 June 2021. There is a zero coupon bond with exactly two years until maturity (i.e. the maturity date is 24 June 2023). The zero coupon bond has a yield to maturity of 4%. The yield curve is flat at 4% per annum. Please use semi-annual compounding when answer the following questions.

c) Explain the concept of bond duration and why this measure is meaningful to investors.

d) Explain the concept of bond immunization and the benefits derived from using this technique.

Reference no: EM133061424

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