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    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 Preview

    The price is the present value of cash flows.

    For the interest part, there will be semi annual ...

    Solution Summary

    This solution contains an explanation of how to calculate price of two payment streams within the context of strip bonds.