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Thanks BWV.
The explanation for C makes a lot of sense now. Im not so clear about the explanation for A though. I can intuitively see that if I lock money away for a longer period I should expect a greater return, but how does the duration formula show this?
For the two bonds I have something like the following :
P_z = F/(1+R)^n
P_c = C(1/(1+r) + 1/(1+r)^2 + ... + 1/(1+r)^n) + F/(1+r)^n
Now P_z and P_c are not expected to be equal, and I can choose C to be anything I like, so I have complete flexibility to change P_c and C to give me an r > R or r < R.
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