You will be paying $34,000 a year in tuition expenses at the end of the next...

You will be paying $34,000 a year in tuition expenses at the end of the next two years. Bonds currently yield 10%. (20 points)

What is the present value and duration of your obligation?
What maturity zero-coupon bond would immunize your obligation?
Suppose you buy a zero-coupon bond with value and duration equal to your obligation. Now suppose that rates immediately increase to 11%. 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 9%?

Expert Solution

jeff jeffy answered 1 year ago

You will be paying $11,000 a year in tuition expenses at the end of the next...

You will be paying $11,000 a year in tuition expenses at the end of the next two years. Bonds currently yield 9%. 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 10%. What happens to your net position, that is an increase or decrease in value, to...

You will be paying $11,400 a year in tuition expenses at the end of the next...

You will be paying $11,400 a year in tuition expenses at the end of the next two years. Bonds currently yield 7%. 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 4 decimal places.) b. 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.) ...

You will be paying $11,000 a year in tuition expenses at the end of the next...

You will be paying $11,000 a year in tuition expenses at the end of the next two years. Bonds currently yield 10%. 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 4 decimal places.) b. What is the duration of a zero-coupon bond that would immunize your obligation and its future redemption value? (Do not round intermediate calculations. Round "Duration" to 4 decimal...

You will be paying $12,800 a year in tuition expenses at the end of the next...

You will be paying $12,800 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? (Do not round intermediate calculations. Round "Present value" to 2 decimal places and "Duration" to 4 decimal places.) b. What is the duration of a zero-coupon bond that would immunize your obligation and its future redemption value? (Do not round intermediate calculations. Round "Duration" to 4 decimal...

You will be paying $10,600 a year in tuition expenses at the end of the next...

You will be paying $10,600 a year in tuition expenses at the end of the next two years. Bonds currently yield 7%. 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 4 decimal places.) Present value:|__________________| Duration: |__________________|years b. What is the duration of a zero-coupon bond that would immunize your obligation and its future redemption value? (Do not round intermediate calculations. Round...

You will be paying $9,400 a year in tuition expenses at the end of the next...

You will be paying $9,400 a year in tuition expenses at the end of the next 2 years. Bonds currently yield 7%. a. What is the present value and duration of your obligation? (Do not round intermediate calculations. Round "Present value" to 2 decimal places and "Duration" to 4 decimal places. Omit the "$" sign in your response.) Present value $ Duration years b. What maturity zero-coupon bond would immunize your obligation? (Do not round intermediate calculations....

You will be paying $9,000 a year in tuition expenses at the end of the next...

You will be paying $9,000 a year in tuition expenses at the end of the next 3 years. Bonds currently yield 16%. a What is the present value of your obligation ? __________________ b What is the duration of your obligation ? ______________________ c Suppose you wish to fund your obligation using 1-year zero-coupon bonds and perpetuity bonds. How much of 1-year zero __________________________ and how much of perpetuity bonds ____________________ (in market value ) will you want to hold...

You will be paying $11,500 a year in tuition expenses at the end of the next...

You will be paying $11,500 a year in tuition expenses at the end of the next two years. Bonds currently yield 10%. 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 4 decimal places.) b. 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.) b1,Duration? b2....

You will be paying $9,200 a year in tuition expenses at the end of the next...

You will be paying $9,200 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? (Do not round intermediate calculations. Round "Present value" to 2 decimal places and "Duration" to 4 decimal places.) present value ? duration? b. 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...

You will be paying $9,500 a year in tuition expenses at the end of the next...

You will be paying $9,500 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...

Question

You will be paying $34,000 a year in tuition expenses at the end of the next...

Solutions

Expert Solution

Related Solutions

You will be paying $11,000 a year in tuition expenses at the end of the next...

You will be paying $11,400 a year in tuition expenses at the end of the next...

You will be paying $11,000 a year in tuition expenses at the end of the next...

You will be paying $12,800 a year in tuition expenses at the end of the next...

You will be paying $10,600 a year in tuition expenses at the end of the next...

You will be paying $9,400 a year in tuition expenses at the end of the next...

You will be paying $9,000 a year in tuition expenses at the end of the next...

You will be paying $11,500 a year in tuition expenses at the end of the next...

You will be paying $9,200 a year in tuition expenses at the end of the next...

You will be paying $9,500 a year in tuition expenses at the end of the next...