Question: A: Compute Present Value Compute Duration (years) B: Compute Duration (years) Compute Face-Value C: Net Position (increases/decreases) in value by how much? D: Net Position

A: Compute Present Value

Compute Duration (years)

B: Compute Duration (years)

Compute Face-Value

C: Net Position (increases/decreases) in value by how much?

D: Net Position (increases/decreases) in value by how much?

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? 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 8%. 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 4%

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