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What is the price of strip

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1. Suppose you buy a 7 percent semi-annual coupon, 20-year maturity bond today. The bond has a par value of $1,000. The YTM on the bond is 15 percent. What is the price of the bond? Is this a premium or a discount bond?

2. A $1,000 par value T-Note with 10 years to maturity and 2.625% coupon rate is converted into STRIPS by Citibank and sold to investors for a yield of 2.5%.

a. What is the price of each STRIP?

b. If Citibank is earning a yield of 2.75% on the note, what is their net gain in terms of dollars (Think what price they paid for the notes and what is the net price they are getting from the STRIPS)?

Reference no: EM133121305

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