(A)
Adequate information:
Tuition fee obligation-$10000
Interest rate- 8%
To calculate:
The present value of obligation and duration of obligation
Introduction:
The present value of obligation refers to the sum of all cash flow at a given interest rate received/paid after n years.
(B)
To calculate:
The time period at which zero coupon bond will immunize the tuition fee obligation.
Introduction:
The time to immunize zero Coupon bond is that which has the maturity matching with investor's time horizon.
(B)
To calculate:
The net position of Zero Coupon Bond when interest factor increases to 9%
Introduction:
The Net position refers to the difference between present value of tution fee obligation due to change in interest rate and present
(D)
To calculate:
the net position if the rate decreases to 7%
Introduction:
The Net position refers to the difference between present values of tuition fee obligation due to change in interest rate and present value of bond
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