Question

1.Consider a  semi-annual Treasury Bond with a settlement date of 9/22/2020 and a maturity date of 6/15/2025 and a coupon rate of 3.5%. The investor's estimated yield on the bond is 2.25%, what is the estimated quoted price? (Answer as a percent of the bonds face value)

Answer 1

let the face value of the treasury bond be 1000

Start Date:	M1/D1/Y1
End Date:	M2/D2/Y2

Day Count

= (Y2 – Y1) × 360 + (M2 – M1) × 30 + (D2 – D1)

days= 5*360+(-3)*30+(-7)=1800-97=1703

day count fraction=1703/360=4.81

Bond Price

=

C/r

[

1

–

1/(1+r/2)2n

]

+

P/(1+r/2)2n

C = Annual payment from coupons

n = number of years until maturity

r = market annual interest rate

P = par value of bond

estimated bond price=35/0.0225[1-1/(1+0.0113)^9.62]+1000/(1+0.0113)^9.62

  =1555.56[1-0.897]+1000/0.897

=160.22+897.67

=1057.88

Estimated Bond price in face value %=1057.88/1000*100

=105.78%