Final answer:
To calculate the annual interest rate for the bond, we need to convert the market price into a decimal. The bond is quoted at 87:19, which means the market price is 87.5938. Using the formula: bond price = coupon payment / (1 + interest rate)^(number of periods), we can find the annual interest rate to be approximately 1.68%.
Step-by-step explanation:
A) U.S. Government Treasury Strip
To calculate the annual interest rate for the bond, we need to convert the market price into a decimal. The bond is quoted at 87:19, which means the market price is 87 + 19/32 = 87.5938.
To find the annual interest rate, we can use the formula: bond price = coupon payment / (1 + interest rate)^(number of periods). In this case, we know the bond price (87.5938), the coupon payment (0), and the number of periods (4). Solving for the interest rate gives us an annual interest rate of approximately 1.68%.
Therefore, the annual interest rate for this bond is approximately 1.68%.