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Suppose that you will pay $11,000 a year in tuition expenses at the end of the next three years. Bonds currently yield 6% per annum.

Suppose that you will pay $11,000 a year in tuition expenses at the end of the next three years. Bonds currently yield 6% per annum.

Suppose you buy a zero-coupon bond with a value and duration equal to your obligation. Now the rates immediately increase to 7%. What happens to your net position, that is, to the difference between the value of the bond and that of your tuition obligation?

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