Question
1) You will be paying $30,000 per year tuition at the end of the next two years. Bonds currently yield 6% a) What are
1) You will be paying $30,000 per year tuition at the end of the next two years. Bonds currently yield 6% a) What are present value and duration of your obligation? (4 points) b) What maturity zero-coupon bond would immunize your obligation? (4 points) c) Suppose you buy a zero-coupon bond with value and duration equal to your obligation. Interest rates immediately increase to 7 %. What will be your net position (difference between the bond value and tuition obligation)? What happens with a change to 5% ? (7 points)
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