Question

A STRIPS traded on March 1, 2018, matures in 10 years on March 1, 2028. Assuming...

A STRIPS traded on March 1, 2018, matures in 10 years on March 1, 2028. Assuming a yield to maturity of 5.5 percent, what is the STRIPS price? (Use Excel to answer this question. Enter your answer as a percentage of par value. Round your answer to 4 decimal places.)

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Answer #1

Price of bond is calculated using PRICE function in Excel.

Settlement = settlement date

Maturity = maturity date

rate = coupon rate. This is 0%, as STRIPS do not pay coupons.

yld = yield to maturity

redemption = redemption value (% of par)

frequency = compounding frequency per year. This is 1.

By inputting the values into this function, we get the bond price per $100 of par value.

The price of the bond is $58.5431

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