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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
9.  You will be paying $10,000 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 obliga- tion. Now suppose that rates immediately increase to 9%. 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 7%?
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