A strip bond will pay $10,000 when it comes due in 15 years.
What is the price of the bond if the yield is to be 9% per annum compounded annually?
My question is, what equation should I use. I looked on line to get some information on strip bonds and found the equation: Price = R/(1+zi) and I also saw one for P = A(1+i)^-n It gives the present amount P dollars that will acumulate to A dollars over a period of n years when earning interest at an annual rate i.
I would appreciate some direction.
Originally Posted by kcsteven
I don't know what a strip bond is. But I guess that you want to know how much money you have to invest to get $10,000 in 15 years at an interest rate of 9%.
If I'm right then you can use the following equation:
C = A*(1 + i)^n
C is the capital after n years
A is the money you invest at the start
i is the interest rate
With your problem the equation becomes:
10,000 = A*(1 + 0.09)^15. Solve for A:
A = $2745.38