Question

You will be paying $8,600 a year in tuition expenses at the end of the next...

You will be paying $8,600 a year in tuition expenses at the end of the next two years. Bonds currently yield 7%.

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.)

1. Present Value =

2. Duration (in years) =

b. What maturity zero-coupon bond would immunize your obligation? (Do not round intermediate calculations. Round "Duration" to 4 decimal places and "Face value" to 2 decimal places.)

1. Duration (in years) =

2. Face Value =

c. Suppose you buy a zero-coupon bond with value and duration equal to your obligation. 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? (Do not round intermediate calculations. Input the amount as a positive value. Round your answer to 2 decimal places.)

1. Net position ____ in value by ____

d. What if rates fall immediately to 5%? (Do not round intermediate calculations. Input the amount as a positive value. Round your answer to 2 decimal places.)

1. Net position ____ in value by ____

I need to see this worked out by hand (pen and paper) NOT in excel. I understand how to format excel but need to be able to work this out myself without the use of excel. Please show all work in arriving at an answer. Thanks!

Homework Answers

Answer #1

IT IS JUST WRITTEN IN EXCEL, NO WHERE EXCEL FUNCTION IS USED. THANK YOU

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You will be paying $12,400 a year in tuition expenses at the end of the next...
You will be paying $12,400 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? (Do not round intermediate calculations. Round "Present value" to 2 decimal places and "Duration" to 4 decimal places.) Present value $ 22113 Duration 1.4808 years b. What is the duration of a zero-coupon bond that would immunize your obligation and its future redemption value? (Do not round...
SHOW ALL WORK PLEASE QUESTION: An insurance company must make payments to a customer of $10...
SHOW ALL WORK PLEASE QUESTION: An insurance company must make payments to a customer of $10 million in 5 years and $25 million in 30 years. The yield curve is flat at 8%. A) What is the present value of its obligation? B) What is the duration of its obligation? C) If it wants to fully fund and immunize its obligation to this customer by buying a single issue of a zero-coupon bond, what face value the bond must have?...
An insurance company must make payments to a customer of $8 million in one year and...
An insurance company must make payments to a customer of $8 million in one year and $4 million in four years. The yield curve is flat at 9%. a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase? (Do not round intermediate calculations. Round your answer to 4 decimal places.) b. What must be the face value and market value of that...
Part A. Suppose your firm has an obligation to pay an annuity with 18 annual payments...
Part A. Suppose your firm has an obligation to pay an annuity with 18 annual payments of $80,000. The first payment is due two years from today. Assume all interest rates are 11.5%. Write down the information requested on your answer sheet. What is the present value of the obligation? Round and express your answer to the nearest whole dollar (i.e., nearest integer). Do not include a dollar sign. Part B. What is the duration of the obligation? Please carry...
Background: Suppose you will go to graduate school for 3 years beginning in year 5. Tuition...
Background: Suppose you will go to graduate school for 3 years beginning in year 5. Tuition is $25,109 per year, due at the end of each school year. Assume annual compounding. In the above description, if you see a flat yield curve of 0.08 for example, then it means that the yield at all maturities is 8%. Question: Suppose in the question above, the tuition obligations have a Macaulay duration of 6.36 in years, and that you wish to immunize...
A 14-year, $1,000 par value zero-coupon rate bond is to be issued to yield 7 percent....
A 14-year, $1,000 par value zero-coupon rate bond is to be issued to yield 7 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. What should be the initial price of the bond? (Assume annual compounding. Do not round intermediate calculations and round your answer to 2 decimal places.) b. If immediately upon issue, interest rates dropped to 6 percent, what would be the value of the zero-coupon...
A 25-year, $1,000 par value zero-coupon rate bond is to be issued to yield 8 percent....
A 25-year, $1,000 par value zero-coupon rate bond is to be issued to yield 8 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. What should be the initial price of the bond? (Assume annual compounding. Do not round intermediate calculations and round your answer to 2 decimal places.) b. If immediately upon issue, interest rates dropped to 7 percent, what would be the value of the zero-coupon...
a. What is the duration of a two-year bond that pays an annual coupon of 10.3...
a. What is the duration of a two-year bond that pays an annual coupon of 10.3 percent and has a current yield to maturity of 12.3 percent? Use $1,000 as the face value. (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616)) b. What is the duration of a two-year zero-coupon bond that is yielding 11.5 percent? Use $1,000 as the face value. a. Duration years b. Duration years
a. What is the duration of a two-year bond that pays an annual coupon of 11...
a. What is the duration of a two-year bond that pays an annual coupon of 11 percent and has a current yield to maturity of 13.7 percent? Use $1,000 as the face value. (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616)) (in years) b. What is the duration of a two-year zero-coupon bond that is yielding 11.5 percent? Use $1,000 as the face value. (in years )
a. Find the duration of a 6% coupon bond making annual coupon payments if it has...
a. Find the duration of a 6% coupon bond making annual coupon payments if it has three years until maturity and has a yield to maturity of 6%. Note: The face value of the bond is $1,000. (Do not round intermediate calculations. Round your answers to 3 decimal places.) b. What is the duration if the yield to maturity is 10%? Note: The face value of the bond is $1,000. (Do not round intermediate calculations. Round your answers to 3...