You will pay $500,000 for a house in fve years. Bonds currently yield 9%. You fully fund and immunize your obligation using a portfolio of one-year zero coupon bond and a 10-year bond which has a duration significantly higher than 5 years. Now suppose right after you fully funded and immunized your obligation, interest rate immediately increases to 10%. Does your net position, that is, the difference between the value of the bonds and that of your obligation, becomes positive, or negative, or stays at zero? Please enter 1 for the first choice, 2 for the second choice, and 3 for the last choice. Your answer (enter 1, or 2, or 3).
You will pay $500,000 for a house in fve years. Bonds currently yield 9%. You fully fund and immunize your obligation using a portfolio of one-year zero coupon bond and a 10-year bond which has a duration significantly higher than 5 years. Now suppose right after you fully funded and immunized your obligation, interest rate immediately increases to 10%. Does your net position, that is, the difference between the value of the bonds and that of your obligation, becomes positive, or negative, or stays at zero? Please enter 1 for the first choice, 2 for the second choice, and 3 for the last choice. Your answer (enter 1, or 2, or 3).
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
Related questions
Question
None
Transcribed Image Text:You will pay $500,000 for a house in fve years. Bonds currently yield 9%. You fully fund and immunize your obligation
using a portfolio of one-year zero coupon bond and a 10-year bond which has a duration significantly higher than 5
years. Now suppose right after you fully funded and immunized your obligation, interest rate immediately increases to
10%. Does your net position, that is, the difference between the value of the bonds and that of your obligation,
becomes positive, or negative, or stays at zero? Please enter 1 for the first choice, 2 for the second choice, and 3 for the
last choice. Your answer (enter 1, or 2, or 3).
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education