50.1K

Verified Solution

Link Copied!

You will be paying $8,500 a year in tuition expenses at the end of the next two years. Bonds currently yield 6%. 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 7%. 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 5%? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D 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 4 decimal places.) Present value Duration years Required A Required B > You will be paying $8,500 a year in tuition expenses at the end of the next two years. Bonds currently yield 6%. 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 7%. 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 5%? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D What maturity zero-coupon bond would immunize your obligation? (Do not round intermediate calculations. Round "Duration" to 4 decimal places and "Face value" to 2 decimal places.) years Duration Face value You will be paying $8,500 a year in tuition expenses at the end of the next two years. Bonds currently yield 6%. 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 7%. 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 5%? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D What if rates fall immediately to 5%? (Do not round intermediate calculations. Input the amount as a positive value. Round your answer to 2 decimal places.) Net position in value by

Answer & Explanation Solved by verified expert

See Answer