Below are hypothetical prices and maturities of STRIPs, which are zero-coupon bonds that pay $100 at maturity. The prices are quoted in 32nds. Maturity Price

3 months 98:20

9 months 95:19

(a) Calculate annualized bond-equivalent yields for each STRIP. (4 marks)

(b) Imagine that there is a Treasury coupon bond, issued 9 years ago, that matures in nine months. The coupon is 8 percent, paid semiannually. What price should the bond have to be consistent with the STRIPs prices above? (Calculate the total price, including accrued interest.)