Suppose You Have a Chance to Buy a Treasury Strip

question 31

Multiple Choice

Suppose you have a chance to buy a Treasury strip.The strip is from a government bond with a 6% coupon rate (face value of $1,000) .You will receive this strip in one year and have a discount rate of 10%.What is the price you are willing to pay for this strip?

• A) $36.87
• B) $54.55
• C) $60.00
• D) $94.34

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Definitions:

Quick Profit

Gains realized from the rapid buying and selling of securities or other assets, aiming for short-term financial gain.

Debentures

A type of long-term debt instrument that is not secured by physical assets or collateral.

Warrants

Financial instruments that give the holder the right to purchase shares of a company at a specific price within a certain time period.

Securities

Financial instruments that represent an ownership position in a publicly-traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership as represented by an option.