Question
In: Finance
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%?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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...
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