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 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 7%?
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Kirti Kaushal
Having experience of more than 10 years is good enough to coach my students. Currently, I am working as an active supervisor of ACCA students. In my career, I helped students in financial accounting, management accounting, cost accounting, financial reporting, taxation, and audit. I also helped students publish their articles or papers in good journals. I also helped students with thesis and objective writing.
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