10. You will be paying $10,000 a year in tuition expenses at the end of the next...

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10. You will be paying $10,000 a year in tuition expenses at the end of the next 2 years. Bonds currently yield 8%.

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? What if rates fall to 7%?

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Investments

ISBN: 9780077261450

8th Edition

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

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