A 25-year, $1,000 strip bond was first issued at 5.5% compounded semi-annually. Five years before maturity it was sold on the bond market at a price that would provide the purchaser with a yield rate of 6.8% compounded semi-annually. What was the selling price at that time?
A) $338
B) $263
C) $762
D) $716
E) $258

Question

Quizplus · Accepted Answer

The selling price is calculated using the present value formula for bonds. The bond has 5 years remaining, with a yield rate of 6.8% compounded semi-annually. The present value of the bond is calculated as $1,000 / (1 + 0.034)^10, which equals approximately $716.

A 25-Year, $1,000 Strip Bond Was First Issued at 5