Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:You will be paying $8,400 a year in tuition expenses at the end of the next two years. Bonds currently yield 10%. a. What is the present value and
duration of your obligation? b. What maturity zero-coupon bond would immunize your obligation? c. Suppose you buy a zero-coupon bond with value
and duration equal to your obligation. Now suppose that rates immediately increase to 11%. What happens to your net position, that is, to the difference
between the value of the bond and that of your tuition obligation? d. What if rates fall immediately to 9%?
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