Question

The yield of 1yr, 2yr, 3yr STRIP are 1%, 2%, 3%. Calculate the price of the coupon bond with face value of 100, coupon rate of 5%, annual payments, and maturity of 3 years. $______ (keep two decimal points)

Answer 1

Present Value = Amount / (1+yield )^ period

Coupon Amount = 0.05 * 100 = 5

Face Value = 100

Present Value of the first coupon = 5/(1+0.01)^1 = 4.95

Present Value of the second coupon = 5/(1+0.02)^2 = 4.81

Present Value of the third coupon = 5/(1+0.03)^3 = 4.58

Present Value of face value = 100/(1+0.03)^3 = 91.51

Price of the coupon bond = 4.95 + 4.81 + 4.58 + 91.51 = 105.85 Answer

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