Suppose today is October 23rd 2020. You want to buy a treasury strip (treasury zero coupon bond) that matures on October 23rd 2032. You check the ask price and see that it is selling for $87.50.

1. Calculate the ask yield of the bond assuming annual compounding?
2. You wonder what rate of return you would earn each year if you buy this bond and hold it till maturity.
3. If you buy this bond at $87.50 today and expect it to hold it till maturity, what rate of return are you expecting to earn over your holding period?
4. If you hold this bond till maturity, are you exposed to interest rate risk?
5. If you buy this bond at $87.50 and hold it till maturity, what will be your realized rate of return?
6. If you buy 1 unit of this bond at $87.50, how much will the treasury pay you at maturity?
7. What is the yield the maturity of this bond?
8. What is the 12-year spot rate?
9. What is the discount price of this bond?
10. Calculate the ask yield of this bond assuming semi-annual compounding.

Answer rating: 100% (QA)

Lets break down the calculations step by step 1 Ask Yield of the Bond The ask yield is the yield to maturity YTM of the bond Well use the following fo... View the full answer