You will be paying $10,500 a year in tuition expenses at the end of the next...

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Finance

You will be paying $10,500 a year in tuition expenses at the endof the next two years. Bonds currently yield 8%.
a.
What is the present value and duration of your obligation?(Do not round intermediate calculations.Round "Present value" to 2 decimal places and "Duration" to 4decimal places.)

  Present value $
  Duration years
b.
What is the duration of a zero-coupon bond that would immunizeyour obligation and its future redemption value?(Do not round intermediatecalculations. Round "Duration" to 4 decimal placesand "Future redemption value" to 2 decimalplaces.)

  Duration years
  Future redemption value $
You buy a zero-coupon bond with value and duration equal toyour obligation.
c-1.
Now suppose that rates immediately increase to 9%. What happensto your net position, that is, to the difference between the valueof the bond and that of your tuition obligation?(Do not round intermediate calculations.Round your answer to 2 decimal places.)
  Net position changes by $
c-2.
What if rates fall to 7%? (Do not roundintermediate calculations. Round your answer to 2 decimalplaces.)
  Net position changes by $

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4.1 Ratings (724 Votes)

a Present value 1872428 Duration 14808 years Formula CF18n PVTotal PV nW Year n Cash flow CF Present Value PV of CF Weight W Duration calculation 1 10500 972222 052 05192 2 10500 900206 048 09615 Total 1872428 100 14808 b A zero coupon bond would need to have the See Answer

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You will be paying $10,500 a year in tuition expenses at the endof the next two years. Bonds currently yield 8%.a.What is the present value and duration of your obligation?(Do not round intermediate calculations.Round "Present value" to 2 decimal places and "Duration" to 4decimal places.) Present value$ Durationyearsb.What is the duration of a zero-coupon bond that would immunizeyour obligation and its future redemption value?(Do not round intermediatecalculations. Round "Duration" to 4 decimal placesand "Future redemption value" to 2 decimalplaces.) Durationyears Future redemption value$ You buy a zero-coupon bond with value and duration equal toyour obligation.c-1.Now suppose that rates immediately increase to 9%. What happensto your net position, that is, to the difference between the valueof the bond and that of your tuition obligation?(Do not round intermediate calculations.Round your answer to 2 decimal places.) Net position changes by$ c-2.What if rates fall to 7%? (Do not roundintermediate calculations. Round your answer to 2 decimalplaces.) Net position changes by$