Question

The following table depicts the yield to maturity on U.S. government treasury strips.

Years to Maturity			Yield
	1			2.20	%
	3			2.70	%
	5			3.00	%
	10			3.20	%
	15			3.40	%
	30			3.70	%

Using the data provided in the table, calculate the price of U.S. Treasury strips with 5, 10, and 15 years to maturity. (Hint: Bond prices are quoted as a percentage of par.) (Enter your answer as a percent rounded to 2 decimal places.)

5-year price		%
10-year price		%
15-year price		%

annual compounding

Answer 1

Price of a US Treasury STRIPS is calculated using formula

Price = Face value/(1+r)^t

Where r is yield for respective maturity of the STRIPS.

a). For 5-year U.S. Treasury strips, t = 5

r = 3%

Let FV = $100

So, price = 100/1.03^5 = $86.26

Or price = 86.26% of Face value

b). For 10-year U.S. Treasury strips, t = 10

r = 3.2%

Let FV = $100

So, price = 100/1.032^10 = $72.98

Or price = 72.98% of Face value

c). For 15-year U.S. Treasury strips, t = 15

r = 3.4%

Let FV = $100

So, price = 100/1.034^15 = $60.56

Or price = 60.56% of Face value