2. 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%?

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 8%. The characteristics of the risky funds are as follows: The correlation between the fund returns is 0.10 . You require that your portfolio yield an expected return of 14%, and the it be efficient, that is, on the steepest feasible CAL. a. What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the proportion invested in the money market fund and each of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.) A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 8%. The characteristics of the risky funds are as follows: The correlation between the fund returns is 0.10 . You require that your portfolio yield an expected return of 14%, and the it be efficient, that is, on the steepest feasible CAL. a. What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the proportion invested in the money market fund and each of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.)