Question
http://www.wsj.com/mdc/public/page/2_3020-tstrips.html?mod=topnav_2_3020 http://www.wsj.com/mdc/public/page/2_3020-treasury- 20170501.html?mod=mdc_pastcalendar 1. Consider three Treasuries maturing 5/15/17: an 8.75% coupon bond, a 4.5% coupon note and a zero-coupon STRIP (for the purposes of
http://www.wsj.com/mdc/public/page/2_3020-tstrips.html?mod=topnav_2_3020
http://www.wsj.com/mdc/public/page/2_3020-treasury- 20170501.html?mod=mdc_pastcalendar
1. Consider three Treasuries maturing 5/15/17: an 8.75% coupon bond, a 4.5% coupon note and a zero-coupon STRIP (for the purposes of this homework, use the one of 5/15/18).
"Establish whether it was cheaper to buy the 4.5% note directly, or to instead buy a portfolio of the 8.75% bond and the STRIP with the same cash flows "
Show that, for this comparison, it does not matter whether or not you include accrued interest (that is, you could add it in for each note, or leave it out, and your answer to b is the same).
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