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Math Help - strip bonds

  1. #1
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    strip bonds

    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.
    Thank You,
    Keith Stevens
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  2. #2
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    Quote Originally Posted by kcsteven View Post
    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?
    ...

    Hello, Keith,

    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


    EB
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