What is the pv and duration of the obligation

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Your firm has an obligation to pay a parts supplier eight equal annual payments of $16,000,000 (the first payment is due 1 year from today). Assume the Treasury yield curve is a flat 4.25%, and today your firm purchases zero-coupon Treasury bonds to fund and immunize the obligation. All bonds that your firm purchases have the same maturity.

a. What is the PV and duration of the obligation

b. What is the FV of bonds the firm buys

C. Immediately after purchasing the bonds the yield curve increase to a flat 4.63% by how much in dollars will the obligation be underfunded or over funded.

Reference no: EM131959578

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