Suppose the (quoted) yield on each of the six STRIPS increases by 0.05 percent. Calculate the percentage

Question:

Suppose the (quoted) yield on each of the six STRIPS increases by 0.05 percent. Calculate the percentage change in price for the one-year, three-year, and six-year STRIPS. Which one has the largest price change? Now suppose that the quoted price on each STRIPS decreases by 0.500. Calculate the percentage change in (quoted) yield for the one-year, three-year, and six-year STRIPS. Which one has the largest yield change? What do your answers tell you about the relationship between prices, yields, and maturity for discount bonds?

U.S. Treasury STRIPS, close of business November 15, 2015:

Price Price Maturity November '19 Maturity November '16 99.471 95.035 November '20 November '21 November '17 98.782 92.5

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Fundamentals of Investments, Valuation and Management

ISBN: 978-1259720697

8th edition

Authors: Bradford Jordan, Thomas Miller, Steve Dolvin

Question Posted: