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The January 1, 2005, yield on a Treasury STRIP maturing in 8 years is 5.488%. If the face value is $1,000, what should be the quoted cost of the STRIP today, assuming annual compounding?

User Maxbeizer
by
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1 Answer

4 votes

Answer:

$652.19

Step-by-step explanation:

the market price = $1,000 / (1 + 0.05488)⁸ = $1,000 / 1.53329 = $652.19

In order to calculate the price of the STRIP we have to use the present value formula.

present value = future value / (1 + i)ⁿ

future value is the face value = $1,000

i = 5.488%

n = 8

User Mrmowji
by
8.2k points

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