A Treasury security carries a fixed 3 percent annual coupon rate and matures in exactly two years.

Question:

A Treasury security carries a fixed 3 percent annual coupon rate and matures in exactly two years. The Treasury is currently priced at $ 10,000 par value to yield 3 percent to maturity. Assume that you can buy the bond and strip the coupons and final principal payment and sell each of them as a zero coupon security. Given the following zero coupon rates, what price would you get for this purchase and subsequent sales?

Maturity 6- month 1- year 18- month 2- year

Zero coupon yield 2.2% 2.6% 2.9% 3.6%

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...