Please answer A & B: Using the regular Treasury note of $1000 Re: Judy Johnson i

Question

Please answer A & B:

Using the regular Treasury note of $1000

Re: Judy Johnson is choosing between investing in two Treasury securities that mature in five years and have par values of $ 1,000.            

a. What is its price if investors%u2019 required rate of return is 6.09 percent on similar bonds? Treasury notes pay interest semi-annually.

b. Erron Corporation wants to issue five- year notes but investors require a credit risk spread of 3 percentage points. What is the anticipated coupon rate on the Erron notes?

Explanation / Answer

a) Price = x

x * ( 1.03045 )^10 = 1000

x = $740.85

b) anticipated coupon rate is ( 6.09 + 3 ) = 9.09 annually

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