Final Answer:
c. 12.6 years.
The bond's duration, a measure of interest rate risk, is calculated as a weighted average of cash flows, resulting in approximately 12.6 years due to the higher yield to maturity than the coupon rate.
Step-by-step explanation:
The bond's duration is calculated as a weighted average of the present values of its cash flows, considering both coupon payments and the principal repayment at maturity. In this case, with a higher yield to maturity (10 percent) compared to the coupon rate (7 percent), the bond's duration will be less than its time to maturity.
The duration formula involves a combination of the bond's time to maturity, coupon rate, and yield to maturity. In situations where the yield to maturity exceeds the coupon rate, as in this scenario, the duration will be less than the time to maturity. The specific calculation for this bond results in a duration of approximately 12.6 years.