Question
The yield to maturity for a 19.00 year STRIPS is 5.58%. If par value is $1,000. then it should sell for $_______.
Answers
GPT-4o mini
To determine the price of a STRIPS (Separate Trading of Registered Interest and Principal Securities) with a yield to maturity of 5.58% and a par value of $1,000, we can use the following formula for present value:
\[
P = \frac{F}{(1 + r)^n}
\]
Where:
- \( P \) = present value (price of the STRIPS)
- \( F \) = face value (par value)
- \( r \) = yield to maturity (as a decimal)
- \( n \) = number of years until maturity
Given:
- \( F = 1,000 \)
- \( r = 5.58\% = 0.0558 \)
- \( n = 19 \)
Now substituting the values into the formula:
\[
P = \frac{1,000}{(1 + 0.0558)^{19}}
\]
Calculating the denominator:
\[
1 + 0.0558 = 1.0558
\]
Calculating \((1.0558)^{19}\):
\[
(1.0558)^{19} \approx 2.67957
\]
Now substituting back:
\[
P = \frac{1,000}{2.67957} \approx 372.53
\]
Thus, the price of the STRIPS should sell for approximately **$372.53**.
\[
P = \frac{F}{(1 + r)^n}
\]
Where:
- \( P \) = present value (price of the STRIPS)
- \( F \) = face value (par value)
- \( r \) = yield to maturity (as a decimal)
- \( n \) = number of years until maturity
Given:
- \( F = 1,000 \)
- \( r = 5.58\% = 0.0558 \)
- \( n = 19 \)
Now substituting the values into the formula:
\[
P = \frac{1,000}{(1 + 0.0558)^{19}}
\]
Calculating the denominator:
\[
1 + 0.0558 = 1.0558
\]
Calculating \((1.0558)^{19}\):
\[
(1.0558)^{19} \approx 2.67957
\]
Now substituting back:
\[
P = \frac{1,000}{2.67957} \approx 372.53
\]
Thus, the price of the STRIPS should sell for approximately **$372.53**.
123
what value do I enter for FV,i/y, PMT, N and PV to solve on a finance calculator?
GPT-4o mini
To solve for the present value (PV) of the STRIPS on a financial calculator, you will set the following values:
- **FV (Future Value)**: This is the par value of the STRIPS. In this case, enter **1000**.
- **i/y (Interest Rate or Yield)**: This is the yield to maturity expressed as a percentage. Since you have 5.58%, enter **5.58**.
- **PMT (Payment)**: Since STRIPS do not pay interest before maturity, the payment amount is **0**.
- **N (Number of periods)**: This is the number of years until maturity. For your STRIPS, enter **19**.
- **PV (Present Value)**: This is what you are solving for, so you will typically leave this blank initially or enter a guessed amount.
### Steps to calculate on a financial calculator:
1. Enter **N** as 19.
2. Enter **i/y** as 5.58.
3. Enter **PMT** as 0.
4. Enter **FV** as 1000.
5. Compute **PV** (usually by pressing the compute button followed by PV).
After performing these steps, your financial calculator will give you the present value (PV), which represents the price you would expect to pay for the STRIPS. Based on our previous computation, it should be approximately **372.53**.
- **FV (Future Value)**: This is the par value of the STRIPS. In this case, enter **1000**.
- **i/y (Interest Rate or Yield)**: This is the yield to maturity expressed as a percentage. Since you have 5.58%, enter **5.58**.
- **PMT (Payment)**: Since STRIPS do not pay interest before maturity, the payment amount is **0**.
- **N (Number of periods)**: This is the number of years until maturity. For your STRIPS, enter **19**.
- **PV (Present Value)**: This is what you are solving for, so you will typically leave this blank initially or enter a guessed amount.
### Steps to calculate on a financial calculator:
1. Enter **N** as 19.
2. Enter **i/y** as 5.58.
3. Enter **PMT** as 0.
4. Enter **FV** as 1000.
5. Compute **PV** (usually by pressing the compute button followed by PV).
After performing these steps, your financial calculator will give you the present value (PV), which represents the price you would expect to pay for the STRIPS. Based on our previous computation, it should be approximately **372.53**.