Problem 9-4 What is the yield to maturity on a Treasury STRIPS with 4 years to m

Question

Problem 9-4

What is the yield to maturity on a Treasury STRIPS with 4 years to maturity and a quoted price of 87.269? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

What is the yield to maturity on a Treasury STRIPS with 4 years to maturity and a quoted price of 87.269? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Explanation / Answer

Hi,

Please find the detailed answer as follows;

Nper = 4 (indicates the period)

PV = 1000*87.269% = $872.69 (indicates the current price)

FV = 1000 (indicates the face value of bonds)

PMT = 0 (indicates interest payment which is 0 in case of government bonds)

Rate = ? (iindicates YTM)

YTM = Rate(Nper,PMT,PV,FV) = Rate(4,0,-872.69,1000) = 3.46%

Answer is 3.46%

Thanks.

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