Answer: 8.1 years.

To determine the investment horizon when the duration gap is zero, we use the relationship between modified duration and Macaulay duration: - **Modified Duration (ModDur)** = Macaulay Duration (MacDur) / (1 + yield to maturity). - Given ModDur = 7.4 and yield to maturity = 9%, we calculate MacDur as follows: MacDur = ModDur × (1 + yield) = 7.4 × (1 + 9%) = 8.07 years. Since the duration gap is zero, the investment horizon equals the Macaulay duration. Therefore, the investment horizon is closest to **8.1 years**. **Why not A or B?** - **A (6.8 years)**: Incorrect because it results from dividing ModDur by (1 + yield), which misinterprets the relationship. - **B (7.4 years)**: Incorrect because it confuses ModDur with MacDur, leading to an incorrect horizon.

Author: LeetQuiz Editorial Team