Reference no: EM132005960

You will be paying $10,500 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? (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 "Duration" to 4 decimal places and "Future redemption value" to 2 decimal places.) Duration years Future redemption value $ You buy a zero-coupon bond with value and duration equal to your obligation. c-1. Now suppose that rates immediately increase to 10%. What happens to your net position, that is, to the difference between the value of the bond and that of your tuition obligation? (Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to 2 decimal places.) Net position changes by $ c-2. What if rates fall to 8%? (Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to 2 decimal places.) Net position changes by $