Locate the Treasury bond in Figure 6.3 maturing in November 2021 Assume a $1.000

Question

Locate the Treasury bond in Figure 6.3 maturing in November 2021 Assume a $1.000 par value. Requirement 1: Is this a premium or a discount bond? Requirement 2: What is its current yield? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Current yield % Requirement 3: What is its yield to maturity? (Do not round intermediate calculations. Round your answer to 3 decimal places (e.g., 32.162).) Yield to maturity % Requirement 4: What is the bid-ask spread in dollars? (Do not round intermediate calculations. Round your answer to 3 decimal places (e.g., 32.162).) Bid-ask spread $

Explanation / Answer

The required bond is not mentioned in the problem. And the relevant details is also missing, the generalised answer is presented below:

Requirement 1:

The bond is $1000 par value, if the bond is selling at a price above $1000 then it is at premium.

And if the bond is selling at below $1000 then it is at discount.

Requirement 2:

Current yield is the amount of interest that bond is earning at present and is caclualted with the help of coupon or interest payments..

Requirement 3:

Yield to Maturity = C + (F-P)/n whole divided by (F+P) / 2

Where,

C = Coupon or interest payment (Interest is always paid on face value and not on selling price)

F = Face value = $1000

P = Price of the bond (Market value or selling price of the bond)

And n = years to maturity (assuming that the bond is sold in 2015 and maturing in november 2021, then n =6 years)

Requirement 4:

Bid ask spread is the difference between ask rate and bid rate. In other words it is the difference between the maximum amount at which buyer of the bond can buy it anmd maximum amount at which the seller of the bond can sell it.

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.