Question

A $1,000 par, 6.5% (Coupon) Treasury bond maturing in three years is priced to yield 6.5%.   Its market price (assuming semiannual coupon payments) is

	A.	$956.78
	B.	$985.30
	C.	$1,026.64
	D.	$1000.00

Answer 1

Answer is $1,000.00

Face Value = $1,000

Annual Coupon Rate = 6.50%
Semiannual Coupon Rate = 3.25%
Semiannual Coupon = 3.25% * $1,000
Semiannual Coupon = $32.50

Time to Maturity = 3 years
Semiannual Period = 6

Annual YTM = 6.50%
Semiannual YTM = 3.25%

Market Price = $32.50 * PVIFA(3.25%, 6) + $1,000 * PVIF(3.25%, 6)
Market Price = $32.50 * (1 - (1/1.0325)^6) / 0.0325 + $1,000 * (1/1.0325)^6
Market Price = $32.50 * 5.37259 + $1,000 * 0.82539
Market Price = $1,000.00