Question

A T-bond is sold as STRIP. The face value per bond is $1,000. Maturity is 10 years and coupon rate is 6% APR but coupons are paid semi-annually and YTM is 7.5% APR. Use this information to answer the following:

a.       What is the price of 6^th payment?

b.      If your plan is to raise $150,000 by using a) above then how many strips would you purchase?

c.       What is the cost if you are buying principle strip and how many strips would be needed if you want to raise $1,000,000 by buying the principle strip?

d.      If the bond is not a strip bond then what would be your cost if you still buying the same number of strips as estimated in c.

Answer 1