Question

What would the current price be of a $1,000 T Note with a 5% coupon rate, 10 year maturity if market rates were 4%? (enter answer with 2 decimal places - $XXXX.XX)

Answer PV(0.02,20,25,1000) = -1,081.76

Again, based on the security in problem 14 above, what would be the current price of the periodic payment STRIP? (enter answer as a decimal with two decimal places - XXXX.XX)

Answer 1

There will be 10*2 =20 periodic payments and a final value payment.

Periodic Payment = (0.05/2)*1000 = 25

Final Value Payment = 100

Lets consider them as 21 different securities and find pv of all of them.

Rate = 2% (semi annual)

Payment	Payments	Current Price
1	25	25/1.02^1= 24.51
2	25	25/1.02^2=24.03
3	25	25/1.02^3=23.56
4	25	25/1.02^4=23.10
5	25	25/1.02^5=22.64
6	25	25/1.02^6=22.20
7	25	25/1.02^7=21.76
8	25	25/1.02^8=21.34
9	25	25/1.02^9=20.92
10	25	25/1.02^10=20.51
11	25	25/1.02^11=20.11
12	25	25/1.02^12=19.71
13	25	25/1.02^13=19.33
14	25	25/1.02^14=18.95
15	25	25/1.02^15=18.58
16	25	25/1.02^16=18.21
17	25	25/1.02^17=17.85
18	25	25/1.02^18=17.50
19	25	25/1.02^19=17.16
20	25	25/1.02^20=16.82
20	1000	1000/1.02^20 =672.97