213T.1
1.Consider the following STRIP table:
| BID | ASKED | ASK YIELD | |
| Aug 18 | 96.60 | 96.63 | 6.10 |
| Feb 19 | 6.20 | ||
| Aug 19 | 91.02 | 91.13 | 6.28 |
| Feb 20 | 88.05 | 88.07 | 6.36 |
b. What would be the price of a 9%, $1000 par bond with semi-annual coupons, maturing in Aug 19? (the next coupon payment is due in Aug 18)? (6 pts.)
c. Is this bond selling at a premium or a discount and why is it doing so? (4 pts.)
d. Of the bond and the four STRIPS, which should have the most volatile price? EXPLAIN. (4 pts)
e. Rank the bond and the 4 STRIPS from lowest to highest Yield-to-Maturity. EXPLAIN (5 pts.)
f. Give me two reasons why the yield curve might be shaped the way it is here. (5 pts.)
g. If inflation is expected to be 3% this year (expressed as a semi-annually compounded rate), what are the expected real rates over the next 6 months and the next year? (4 pts.)