Business Date Chosen Five Years Ago 9/28/2013 1-month Nominal T-bill Rate on tha

Question

Business Date Chosen Five Years Ago

9/28/2013

1-month Nominal T-bill Rate on that Date

0.04%

3-month Nominal T-bill Rate on that Date  

0.03%

6-month Nominal T-bill Rate on that Date  

0.07%

1-year Nominal T-note Rate on that Date  

0.14%

5-year Nominal T-note Rate on that Date  

0.4%

10-year Nominal T-note Rate on that Date  

2.78%

20-year Nominal T-bond Rate on that Date  

3.5%

30-year Nominal T-bond Rate on that Date  

3.75%

Business Date Chosen Five Years Ago

9/28/2013

1-month Nominal T-bill Rate on that Date

0.04%

3-month Nominal T-bill Rate on that Date  

0.03%

6-month Nominal T-bill Rate on that Date  

0.07%

1-year Nominal T-note Rate on that Date  

0.14%

5-year Nominal T-note Rate on that Date  

0.4%

10-year Nominal T-note Rate on that Date  

2.78%

20-year Nominal T-bond Rate on that Date  

3.5%

30-year Nominal T-bond Rate on that Date  

3.75%

4. Assume that two U.S. Treasury securities were purchased at par (S1000) on your selected date five years ago: 1) a 10-year T bond. Also assume that for cach of the two securities the reported nominal rate that you found above was the coupon rate at issuancc. -note and 2) a 20-year I Assuming semi-annual coupon payments, calculate the value of each bond today after 5 years based on the current 5-year Tr nominal rate for the original 10-year note and a curent 15-year rate (assume it is the average of the current Treasury constant maturity nominal 10- and 20-ycar rates) for the original 20-ycar bond at Treasury constant maturity a) Complete the following tables (see example): 10-Year Bond Purchased for $1000 5 Years Ago Original Value Coupon Rate (From table you completed above at | 2.78% / 2-1.39% the chosen date from 5 years ago, the original 10- year Nominal T-bond Rate divided by 2 for semi annual payments) Current 5-Year Yield to Maturity (The most recent | 1.74% / 2 .0087% 5-year Nominal T-note Rate reported at the Fed site divided by 2 for semi-annual Number of Semi-Annual Periods Remainin Current Value $1000 20-Year Bond Purchased for S1000 5 Years Ago Original Value Coupon Rate (From table you completed above at the chosen date from 5 years ago, the original 20- year Nominal T-bond Rate divided by 2 for sem annual Current 15-Year Yicld to Maturity (Take the average of the most recent 10- and 20-ycar Nominal T-bond Rates reported at the Fed site, and then divide thi $1000 s average rate by 2 for semi-annual Number of Semi-Annual Periods Remainin Current Valuc Gain or Loss on the Bond over the 5 vears 30 Current Value PVa Coupon Payment

Explanation / Answer

Example table: 10 year government bond purchased 5 years ago at $1,000

Orginal Value = 1,000

Coupon rate = 2.78%/2 = 0.0278/2 = 0.0139

Yield to maturity =1.74%/2 =0.0174/2 = 0.0087

Number of Semi-annual periods to maturity = 10-5 =5 years = 5*2 =10 semi annual periods

Current Value = PV(rate,nper,pmt,fv) in excel = pV(0.0087,10,13.9,1000) =$1,049.60

Gain over 5 years = 1049.60 -1000 = $49.60

Part -2: 20 year bond purchased for $1,000 5 years ago

Original value = 1,000

Coupon rate = 3.5% = 0.035/2 = 0.0175

Yield to martuirty (From the Fed site) = 2.96% = 0.0296/12 = 0.0148

Nmber of semi annual periods to maturiy = 30

Current value =PV(rate,nper,pmt,fv) in excel = PV(0.0148,30,17.5,1000) = $1,065.03

Gain = 1063.03-1000 = $63.05

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

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