You are given the following prices of US Treasury Strips (discount or zero coupon bonds):

Maturity	Price (per 100 FV)
1	96.2
2	91.6
3	86.1

Now, suppose you are offered a project which returns the following cashflows:

1. $300m at the end of year 1
2. $210m at the end of year 2
3. $400m at the end of year 3

The project costs $600m today. Calculate the NPV of the project using the spot rates computed above.

• $0
• $75
• $150
• $225
• $250

References

Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.

Solution: D

PV = $300M × 96.2/100 + $210M × 91.6 /100 + $400M × 86.1/100 − $600M = $225.36

References

Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.