Strip bonds: payment streams
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You are a financial engineer for a major bank who has created a strip bond by selling the coupon payments of an 8% coupon bond with a 9.5% yield to maturity separately from the par value payment at maturity (coupon payments are made semi-annually).
If there are 12 years left to maturity and the par value is $1000, what is the price of each of the two payment streams?
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Solution Summary
This solution contains an explanation of how to calculate price of two payment streams within the context of strip bonds.
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The price is the present value of cash flows.
For the interest part, there will be semi annual ...
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