If a 30-year, $10,000 strip bond is issued at a yield rate of 5.75% compounded semi-annually, what is its issue price?
A) $349
B) $978
C) $993
D) $1,869
E) $1,826

Question

Quizplus · Accepted Answer

The issue price of a strip bond (zero-coupon bond) can be calculated using the formula for the present value of a single future amount: $P = F / (1 + r)^n$, where $P$ is the present value (issue price), $F$ is the face value of the bond ($10,000), $r$ is the semi-annual interest rate (5.75%/2 = 2.875%), and $n$ is the total number of compounding periods (30 years * 2 = 60 periods). Plugging in the values: $P = 10000 / (1 + 0.02875)^{60}$, which calculates to approximately $1,826. Therefore, the correct answer is E, $1,826.

If a 30-Year, $10,000 Strip Bond Is Issued at a Yield