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Problem 4 You will be paying $10,000 a year in tuition expenses at the end of the next two years. Bonds currently yield 8%. a.
Problem 4 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. Suppose you buy a zero-coupon 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? What if rates fall to 7%
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