You are planning to attend an master level Program that will require payment of $$12,000$ a year in tuition

expenses at the end of each year for $2$ years. Bonds currently yield $20\%.$

a What is the present value of your obligation Blank $1?($ sample answer: $25000)$

b What is the duration of your obligation Blank $2?($sample answer: $2\mathrm{.}53$ years

c Suppose you wish to fund your obligation using $1-$year zero$-$coupon bonds and perpetuity bonds. How

much of $1-$year zero in dollarBlank $3($input example: $25000)$ and how much of perpetuity bonds in dollar

Blank $4($sample answer: $25000)$ will you want to hold to both fully fund and immunize your obligation?

Suppose you buy $1-$year zero$-$coupon bonds and perpetuity bonds to immunize your obligation. Now

suppose that rates immediately increase to $22\%.$

e$.$ What is your tuition obligation Blank $5$ now? $($sample answer: $$25000)$

f$.$ What is the value of your position in $1-$year$-$zero$-$coupon bonds now Blank $6?($sample answer: $25000)$

g$.$ What is the value of your position in perpetuity now Blank $7?($sample answer: $25000)$

Blank $1$

Blank $2$

Blank $3$ Add your answer