The following table shows the prices of a sample of U.S. Treasury strips in August 2009. Each strip makes a single payment of $1,000 at maturity.
a. Calculate the annually compounded, spot interest rate for each year.
b. Is the term structure upward- or downward-sloping, or flat?
c. Would you expect the yield on a coupon bond maturing in August 2013 to be higher or lower than the yield on the 2013 strip?
Maturity | Price (()(%)(%) |
August 2010 | 99.423 |
August 2011 | 97.546 |
August 2012 | 94.510 |
August 2013 | 90.524 |
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