Suppose that you can purchase a 10-year zero-coupon note (STRIP) offered by the U.S. Treasury. If the par value is 1000.
What is the price if the market yield is 2.15% (use annual compounding)?
What would the price be one year later if the market yield remains the same?
What is your holding period return for the one-year period?
What can you conclude about how you earn a return on a zero-coupon bond over time?