You will be paying $8,600 a year in tuition expenses at the end of the next two years. Bonds currently yield 7%. e. 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 9%. 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 5%? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D
You will be paying $8,600 a year in tuition expenses at the end of the next two years. Bonds currently yield 7%. e. 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 9%. 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 5%? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D
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
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Transcribed Image Text:You will be paying $8,600 a year in tuition expenses at the end of the next two years. Bonds currently yield 7%.
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 9%. 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 5% ?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
Required D
What is the present value and duration of your obligation? (Do not round intermediate calculations. Round "Present value" to
2 decimal places and "Duration" to 4 decimal places.)
Present value
Duration
years
Required B >
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