STRIPS. Consider an issuance of government bonds that have 20 years until maturity. The bond pays semiannual

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STRIPS. Consider an issuance of government bonds that have 20 years until maturity. The bond pays semiannual coupons based upon a CR of 5.2% and face value of $1,000. Suppose the bonds get “STRIPped” and you want to buy ten of the coupon strips that mature ten years from now and ten of the coupon strips that mature eight years from now. If the YTM on the ten-year STRIPS is 4.5% and the YTM on the eight-year STRIPS is 4.1%, how much would you have to pay in total for these securities?

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Renita Aranha

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