Another Problem, one of the harder one’s I’ve seen. Any ideas how to solve? (FYI - Page 88) If the yield curve for a Treasury Strip is 7-30-08 (3.00%), 1-30-08 (3.6%), 7-30-09 (4.20%), 1-30-09 (4.50%), 7-30-10 (4.70%), 1-30-11 (4.90%) 7-30-11 (5.00%) 1-30-12 (5.20%) 7-30-12 (5.60%) 1-30-13 (5.80%) 7-30-13 (6.3%) and 1-30-14 (6.40%), If a portfolio is formed with equal dollar amounts: A.What would be the value of the Note if it were stripped? B. what is the avg. term to maturity? C. Duration
value of a discount bond is F/(1+r_n/2)^n , number of semi-annual periods to maturity, r_n - spot rate for that maturity. Value of the Stripped note is 1,000/(1+3.2%)^n, where n is the number of semi-annual periods to maturity, its duration is n/2 years. If you are trying to calculate the average term to maturity of unstripped note that should be pretty easy -> get duration.
dont we need some nominal dollar amounts or cashflows that we can then discount using the yields indicated by the trip curve