You bought a STRIP at 96 dollars with maturity of 3 years. Calculate the yield to maturity of this STRIP % (keep two decimal points)

0.0136

Explanation:

The following information can be gotten from the question:

Current price = $96

Par Value = $100

Time to Maturity = 3 years

Semiannual Period = 3 × 2 = 6

The yield to maturity of this STRIP will be calculated as:

Let the semiannually yield to maturity be represented by y.

96 = 100/(1 + y)^6

Cross multiply

96(1+y)^6 = 100

Divide both side by 96

(1+y)^6 = 100/96

(1+y)^6 = 1.0417

1 + y^6 = 1.0417

y^6 = 1.0417 - 1

y^6 = 0.0417

y = 0.0068

Therefore, the semiannual YTM = 0.0068

Annual YTM will now be:

= 2 × Semiannual YTM

= 2 × 0.068

Annual YTM = 0.0136

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