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A STRIPS traded on May 1, 2017, matures in 18 years on May 1, 2035. Assuming...

A STRIPS traded on May 1, 2017, matures in 18 years on May 1, 2035. Assuming a yield to maturity of 5.6 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

here it is not mentioned that STRIPS is a annually or semi-annually compounding, first I will do with annually

what is the STRIPS price (using excel formula) when it is annual compouding

=PV(rate,nper,pmt,fv)

=PV(5.6%,18,0,-1000)

=375.0157

price as % of par value=375.0157/1000=37.5016%

what is the STRIPS price (using excel formula) when it is semi-annual compouding

=PV(rate,nper,pmt,fv)

=PV(5.6%/2,18*2,0,-1000)

=370.0393

price as % of par value=370.0393/1000=37.0039%

the above is answer..

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