Question

Use the following Treasury STRIPS quote to answer the following questions.

U.S. Treasury STRIPS Quote (as of August 15, 2010)
Maturity	Bid	Asked	Chg	Asked yield
8/15/2015	93.102	93.112	0.142	1.46

2.         Complete a time line for an investor planning to buy the above STRIPS with $1,000 of par value. Your time line should identify the financial calculator variables (N, I/Y, PV, PMT, FV).

            0                           1                           2                                               

            |----------------------|----------------------|------   

3.         Complete a time line for a dealer planning to buy the above STRIPS with $1,000 of par value. Your time line should identify the financial calculator variables (N, I/Y, PV, PMT, FV).

            0                           1                           2                                               

            |----------------------|----------------------|------   

Answer 1

Part (2)

Investor will have to buy the strip at the ask price 93.112 = 93.112% x Par value = 93.112% x 1,000 = 931.12

Maturity timeline is 5 years away from current date.

Asked yield = 1.46%

The timeline will be as shown below:

Part (3)

Dealer will buy the strip at the bid price 93.102 = 93.102% x Par value = 93.102% x 1,000 = 931.02

Maturity timeline is 5 years away from current date.

The timeline will be as shown below: