1.

a.Suppose you will go to graduate school for 3 years beginning in year 5. Tuition is $34,657 per year, due at the end of each school year. What is the Macaulay duration (in years) of your grad school tuitions? Assume a flat yield curve of 0.05.

b.Suppose in the question above, the tuition obligations have a Macaulay duration of 4.54 in years, and that you wish to immunize against the tuition payments by buying a single issue of a zero coupon bond. What maturity zero coupon bond should you buy?

c.Suppose in question a, the tuition obligations have a Macaulay duration of 6.86 in years and a present value of 44,225. In order to immunize against the tuition payments by investing in some combination of two bonds with duration 3.48 and 9.91, what is the dollar amount that you should invest in the bond with duration 9.91?