A 10-year, $1,000 par value strip bond is to be issued to yield 8 percent. a. What

Question:

A 10-year, $1,000 par value strip bond is to be issued to yield 8 percent.
a. What should be the initial price of the bond?
b. If immediately upon issue, interest rates dropped to 6 percent, what would be the value of the strip bond?
c. If immediately upon issue, interest rates increased to 10 percent, what would be the value of the strip bond?

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,...

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