Question

You own $250 mil of the UST 2½ (SA) 3yr bond. The bond is currently trading at the “current” YTM for 3yr bonds. Please compute the bond’s price (to three decimal places).

0yr 1yr 3yr 5yr 7yr 10yr 30yr UST 1.26 1.78 2.18 2.43 2.55 2.63 2.90

Answer 1

Using financial calculator BA II Plus - Input details:	#
I/Y = R = Rate or yield / frequency of coupon in a year =	2.180000
PMT = Coupon rate x FV / frequency =	-$6.25
N = Number of years remaining x frequency =	3
FV = Future Value =	-$250.00
CPT > PV = Present value of bond =	$252.30
Formula for bond value = |PMT| x ((1-((1+R%)^-N)) / R%) + (|FV|/(1+R%)^N)	$252.30

Formula for bond value = 6.25 x ((1-((1+2.18%)^-3)) / 2.18%) + (250/(1+2.18%)^3)