Question
Assume that a $1,000,000 par value, semiannual coupon U.S. Treasury bond with three years to maturity...
Assume that a $1,000,000 par value, semiannual coupon U.S. Treasury bond with three years to maturity (YTM) has a coupon rate of 6%. The yield to maturity of the bond is 11.0%. Using this information and ignoring the other costs involved, calculate the value of the Treasury bond.
Please show your calculations.
Homework Answers
Answer #1
The Price of a bond is equal to the Present Value of the future cash flows
Price of bond is geven by, P (or PV) = 
where C is coupon payments = 6% of F semi annually = 3% every six months = 3% of 1,000,000
So, C = 30,000
F is face value or par value = 1,000,000
r = interest rate or yield to maturity = 11% or 5.5% semi annually
t is time period remaining to maturity = 3 years = 6 half years
Therefore, P = 
= 149865.91 + 725245.83
= 875111.74
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