1.

Suppose you will go to graduate school for 3 years beginning in year 6. Tuition is $28,699 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 0.04.

Assume annual compounding. In the above description, if you see a flat yield curve of 0.08 for example, then it means that the yield at all maturities is 8%. Round your answer to 2 decimal places.

2.

Suppose in the question above, the tuition obligations have a Macaulay duration of 4.45 in years, and that you wish to immunize the tuition payments by buying a single issue of a zero coupon bond. What maturity zero coupon bond should you buy?

Assume annual compounding. Round your answer to 2 decimal places.

3.

Suppose in question 1, the tuition obligations have a Macaulay duration of 6.52 in years and a present value of 59,822. In order to immunize the tuition payments by investing in some combination of two bonds with duration 2.58 and 9.57, what is the dollar amount that you should invest in the bond with duration 9.57?

Assume annual compounding. Round your answer to 2 decimal places.

4.

You have 2 years left in grad school. Tuition is $26,699 per year, due at the end of each school year, and the next payment is due a year from today. If you are looking to immunize against future tuition payments by buying a single issue of a zero coupon bond now, then how much should you invest in it? Assume a flat yield curve of 6%.

Assume annual compounding. Round your answer to 2 decimal places.

5.

An 6% annual coupon bond with (face value = 4,000) currently trades at par. Its Macaulay duration is 5.63 years and its convexity is 62.87.

Suppose yield goes from 5% to 5.86% one day. Calculate the approximate dollar change in price using both duration and convexity.

Assume annual compounding. Round your answer to 2 decimal places.