1.You are planning to attend an master level Program that will require payment of $11,000 a year in tuition expenses at the end of each year for 2 years. Bonds currently yield 8.35%.
a What is the present value of your obligation ? ( sample answer: $25,000)
b What is the duration of your obligation ? (sample answer: 2.53 years)
c Suppose you wish to fund your obligation using 1year zerocoupon bonds and perpetuity bonds. How much of 1year zero in dollar (input example: $25,000) and how much of perpetuity bonds in dollar (sample answer: $25,000 ) will you want to hold to both fully fund and immunize your obligation?
Suppose you buy 1year zerocoupon bonds and perpetuity bonds to immunize your obligation. Now suppose that rates immediately increase to 9%.
e.
What is your tuition obligation now? (sample answer: $25,000)
f.
What is the value of your position in 1yearzerocoupon bonds now ? (sample answer: $25,000)
g.
What is the value of your position in perpetuity now ? (sample answer: $25,000)
2.As a bond analyst at Morgan Stanley Investment Banking, you are performing an analysis on bond yiel
d.
You have the following data for a bond issued by Intel Corp. The bond has 7% coupon and 20year maturity. The bond sells for $1,150 and is callable in 10 years at a call price of $1,250. The bond has a face value of $1000 and makes semiannual coupon payments.
a.
What is the annual Yield to Call? (sample answer: 12.45%)
b.
What is the annual Yield to Maturity? (sample answer: 12.45%)
3As a financial analyst at Wells Fargo, you are analyzing how the change in yield impacts the bond price. A bond has a duration of 11 years, a yield of 10%, a convexity of 140, and a market price of $1,000. Suppose the market yield increases by 60 basis points.
What is the percentage change in the bond’s price by the duration only formula? (sample answer: 2.25% or 2.25%)
What is the bond price after the yield change predicted by the duration only formula? (sample answer: $1050.65)
What is the percentage change in the bond’s price predicted by the duration with convexity formula? (sample answer: 2.25% or 2.25%)
What is the bond price after the yield change predicted by the duration with convexity formula? (sample answer: $1050.65)
4As a junior financial analyst at Citibank bond trading desk, John is analyzing the forward rate using the information from zero coupon bonds. Suppose 3 year zero coupon bond is priced at $839.60 and 4 year zero coupon bond is priced at $822.80.
Choose all correct answers. Please note that each incorrect answer will reduce the score by 10%.

a. 
The forward rate from year 3 to 4 is 4.04% 

b. 
The 3 year zero coupon bond which is priced at $839.60 will have a YTM of 7%. 

c. 
The 3 year zero coupon bond which is priced at $839.60 will have a YTM of 6%. 

d. 
The 4 year zero coupon bond which is priced at $822.80 will have a YTM of 7% 

e. 
The 4 year zero coupon bond which is priced at $822.80 will have a YTM of 6% 

f. 
The 3 year zero coupon bond which is priced at $839.60 will have a YTM of 8%. 

g. 
The forward rate from year 3 to 4 is 2.04% 

h. 
The forward rate from year 3 to 4 is 3.04% 

i. 
The 4 year zero coupon bond which is priced at $822.80 will have a YTM of 5% 
5.A financial analyst at JPMorgan Chase is evaluating a Treasury InflationProtected Security (TIPS bond) with a 3year maturity, par value of $1,000, and a 8% coupon rate. The estimated average inflation rate will be 4% over the first year, 5% over the second year, and 6% over the third year.
What is the amount of the coupon payment the bond holder will receive in the first year ?（sample answer: $45) Second year ? (sample answer: $45)
What will be the face value of the bond at the end of first year ? (sample answer: $1,245.45) The second year ? (sample answer: $1,245.45)