You will be paying $10,000 a year in tuition expenses at the end of the next two
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You will be paying $10,000 a year in tuition expenses at the end of the next two years. Bonds currently yield 8%.
a. What are 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 7%? P-963
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Related Book For
ISE Investments
ISBN: 9781266085963
13th International Edition
Authors: Zvi Bodie, Alex Kane, Alan Marcus
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