6, suppose you want to know the price of a 10-year 5% coupon Treasury bond that

Question

6, suppose you want to know the price of a 10-year 5% coupon Treasury bond that pays interest annually. 1)You have been told that the yield to maturity is 7%. What is the price (per $100 of face value)? the price? Could you have guessed the answer without calculating it? 7. Suppose you have the following information from the market for zero- coupon bonds. Price per $1 0 face value 0.943396 0.924556 Maturity Yield to Maturit 1 year 6.0% 2 years 4.0% 1)What would be the price of a 2-year 6% coupon bond paying interest annually? What would be its yield to maturity? 2)What would be the price of a 2-year 4% coupon bond paying interest ield to maturity? Why i discount bond?

Explanation / Answer

The zero coupon bond is sold at a discount to its face value and hence it is called a discount bond.

6) 1) FV $                                    100.00 PMT 5 YIELD 7% PRICE $                                       85.95 2) FV $                                    100.00 PMT 5 YIELD 5% PRICE $                                    100.00 The price of the bond is equal to the face value since coupon rate equals yield 7) Maturity Price per $ 1 of face value Yield to Maturity 1 0.943396 6% 2 0.924556 4% 1) Price $                  103.77 PMT 6 Yield 4.00% 2) Price $                  100.00 PMT 4 Yield 4.00%

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