Which of the following packages of securities is equivalent to a three-year 8 percent coupon bond with semi-annual coupon payments and a par value of 100? A three-year zero-coupon bond: A) with a par value of 150 and six 8% coupon bonds with a maturity equal to the time to each coupon payment of the above bond. B) with a par of 100 and six zero-coupon bonds with a par value of 4 and maturities equal to the time to each coupon payment of the coupon bond. C) with a par of 100 and three zero-coupon bonds with a par value of 4 and maturities equal to the time to each coupon payment of the coupon bond. D) with a par of 100 and six zero-coupon bonds with a par value of 8 and maturities equal to the time to each coupon payment of the coupon bond.

B

Agree, the answer is B. This is just a simple Treasury STRIP question. Milos

B this is straightforward, but time consuming. although, a question, once I read B, i knew it was the correct thing, should i read other choices too or skip over them?

pepp Wrote: ------------------------------------------------------- > B > this is straightforward, but time consuming. > although, a question, once I read B, i knew it was > the correct thing, should i read other choices too > or skip over them? Quickest way is to visualize CF’s The original bond will pay $4 every 6 months for 2.5 years (5x) and $104 on the third year. All of the others have different CF’s (other than B, of course): A) $150 at year 3 --can eliminate it right away C) Par CF is good, but not enough pmts --eliminate D) Structure is right, but CF’s too high --eliminate