1.)

a.)using the STRIP yields provided below, determine the price of a coupon paying bond which pays annual coupons at a coupon rate of 6% and matures in 4 years. Face value = $100.

• 1 Year STRIP: 1.3%
• 2 Year STRIP: 2.2%
• 3 Year STRIP: 3.7%
• 4 Year STRIP: 4.3%
• 5 Year STRIP: 5.3%
• 6 Year STRIP: 6.1%

a.

$128.94

b.

$91.56

c.

$123.33

d.

$119.21

e.

$106.62

b.) Two U.S. T-bills will mature in 1 year from today.

Bond #1 pays $102.34 per $100 of face value.

Bond #2 pays $104.34 per $100 of face value.

Which bond (#1 or #2) pays out at a higher return to the buyer?

a.

Bond #2 pays a higher return than Bond #1.

b.

Bond #2 pays a lower return that Bond #1.

c.

James Bond is paid the most, but he won't live long enough to enjoy it.

d.

Bond #1 pays a higher return that Bond #2.

e.

Bonds #1 & #2 each provide the same rate of return to the buyer as prices adjust to equalize returns.

c.) You buy a bond with a face value of $100 with a coupon rate of 6.2% paid once annually. What is your total cash flow at the maturity date?

a.

$6.20

b.

$106.20

c.

$93.80

d.

None of these answers are correct.

e.

$100