Aa Aa Ul the valuation of bonds that make semiannual payments, the number of UUu

Question

Aa Aa Ul the valuation of bonds that make semiannual payments, the number of UUubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly Assume that a $1,000,000 par value, semiannual coupon U.S. Treasury note with four years to maturity (YTM) has a coupon rate of 6%. The yield to maturity of the bond is 7.70%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note: $1,130,898.64 O $801,053.20 $593,721.78 O $942,415.53 ABased on your calculations and understanding of semiannual coupon bonds Assuming that interest rates remain constant, the T-note's price is expected to

Explanation / Answer

Par Value = $1,000,000

Annual Coupon Rate = 6%
Semiannual Coupon Rate = 3%
Semiannual Coupon = 3% * $1,000,000
Semiannual Coupon = $30,000

Annual YTM = 7.70%
Semiannual YTM = 3.85%

Time to Maturity = 4 years
Semiannual Period to Maturity = 8

Value of Treasury Note = $30,000 * PVIFA(3.85%, 8) + $1,000,000 * PVIF(3.85%, 8)
Value of Treasury Note = $30,000 * (1 - (1/1.0385)^8) / 0.0385 + $1,000,000 / 1.0385^8
Value of Treasury Note = $942,415.53

Assuming that interest rates remain constant, the T-note’s price is expected to $942,415.53

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