Question

You find the following Treasury bond quotes. To calculate the number of years until maturity, assume that it is currently May 2019 and the bond has a par value of $1,000.

Rate | Maturity | Bid | Asked | Chg | Ask Yld |

?? | May 25 | 103.5553 | 103.6435 | +.3106 | 2.469 |

5.574 | May 33 | 104.5043 | 104.6500 | +.4377 | ?? |

6.198 | May 43 | ?? | ?? | +.5496 | 4.171 |

n the above table, find the Treasury bond that matures in May 2025. What is your yield to maturity if you buy this bond?

Coupon rate

Answer #1

Par Value = $1,000

Current Price = Asked Quote * Par Value

Current Price = 103.6435% * $1,000

Current Price = $1,036.435

Annual YTM = 2.469%

Semiannual YTM = 1.2345%

Time to Maturity = 6 years

Semiannual Period = 12

Let Semiannual Coupon be $C

$1,036.435 = $C * PVIFA(1.2345%, 12) + $1,000 * PVIF(1.2345%,
12)

$1,036.435 = $C * (1 - (1/1.012345)^12) / 0.012345 + $1,000 *
(1/1.012345)^12

$1,036.435 = $C * 11.090093 + $863.0928

$173.3422 = $C * 11.090093

$C = $15.63

Semiannual Coupon = $15.63

Annual Coupon = 2 * Semiannual Coupon

Annual Coupon = 2 * $15.63

Annual Coupon = $31.26

Coupon Rate = Annual Coupon / Par Value

Coupon Rate = $31.26 / $1,000

Coupon Rate = 0.0313 or 3.13%

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Chg
Ask
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