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Strip and Coupon Bonds

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Fill in the missing items in the following table, using the Law of One Price. Assume all these bonds have the same risk, the yield curve is flat, and any coupon payments are paid annually.

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Strip and Coupon Bonds

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Strip bonds: payment streams

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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