A STRIPS has a face value of $1,000 and 15 years to maturity. If the yield-to-maturity is 6.3 percent, what is the current dollar value of the STRIPS?
A) $391.32
B) $394.39
C) $386.24
D) $399.95
E) $405.87

Question

Quizplus · Accepted Answer

Using the formula for calculating the present value of a bond:
PV = FV / (1 + r)^n
where PV is the present value, FV is the face value, r is the yield-to-maturity, and n is the number of years to maturity.
We have:
PV = 1000 / (1 + 0.063)^15 = $394.39
Therefore, the current dollar value of the STRIPS is $394.39. The best choice is B.

A STRIPS Has a Face Value of $1,000 and 15