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Assume the following spot rate (zero coupon) curve for this problem Years 0.5 1.0 1.5 2.0 2.5 YTM 7.50 7.75 8.00 8.00 8.00 (a) If

Assume the following spot rate (zero coupon) curve for this problem

Years 0.5 1.0 1.5 2.0 2.5

YTM 7.50 7.75 8.00 8.00 8.00

(a) If all bonds were priced consistently with this curve, what would be the price of a two-year semiannual, 14% coupon security?

(b) Under what circumstances will you expect the value of the total package (coupon bond) to differ from the sum of its component parts (strips)? Why?

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