The following is a list of treasury notes and bond quotes from Table 6 - 1 in yo
ID: 2783538 • Letter: T
Question
The following is a list of treasury notes and bond quotes from Table 6 - 1 in your book. 2021 May bond is a Treasury STRIP (principal) Bond. Assume the par value of both bonds is $10,000. These quotes are as of July 16th, 2013. Please use these figures as shown to answer question.
A. Verify the coupon rate on the 2017 May 31 treasury bond as of July 16th 2013. That is, show the coupon rate on this bond is 2.75%. The number of years between July 16th 2013 and May 31st 2017, after adjusting for a two-day settlement, is 3.8712 years.
B. Verify the asked yield on 2021 May 15 Treasury STRIP bond is 2.22%. The number of years between July 16th 2013 and may 15th 2021, after adjusting for a two day settlement period, is 7.8301 years.
Use Financial calculator and identify the functions used, N, PMT, PV, FV, I, ECT
Maturity 2017 May 31 2021 May 15 bid 106.6875 84.038 asked 106.7188 84.103 asked yield .977 2.22 coupon 2.75Explanation / Answer
Answer A.
Yield to Maturity=Rate (N,Interest,-CP,Par Value)
N=3.8712
Interest 2.75%
CP=106.6875
Par Value=$100
Applying the above formula, Yield to Maturity=Rate (N,Interest,-CP,Par Value)
==RATE(3.8712,2.75,-106.6875,100)
=.98%
Hence the coupon rate of 2.75% is verified
Answer B. In order to calculate the yield, start with the quoted ask price, which is typically stated in terms that assume a face value of $100. Subtract $100 minus the ask price, and then divide the difference by the ask price. This will give you the expected return, but it doesn't take into account the term of the Treasury bill. To complete the calculation, take the expected return, multiply it by 365, and then divide by the number of days until the Treasury bill matures.
We will start by taking 100-84.103 = 15.962 and then dividing 15.962 by 84.103 to get 0.189938. Then, devide that by number of tears remaining i.e 7.8301. The net result is 2.43%.
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