F97Q2.1
Consider the following STRIP table:
| Bid | Ask | Asked Yield | |
| Oct 98 | 7.00 | ||
| Oct 99 | 86:30 | 86:31 | 7.10 |
Assume that the yields are correct (based on 365 day years)
and that they are quoted as semi-annually compounded APR’s.
At what price could you purchase a 1-year STRIP? (1 pt)
What would the price be for a 2-year 10% coupon bond with a
par value of $1000 and annual coupons? (2 pts)
If interest rates go up, what will happen to the price of the 2
year bond? WHY?(1 pt)
Of the 3 securities (the two STRIPS and the bond), which
should have the highest yield-to-maturity? WHY?
(1 pt)
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