Question

You find the following Treasury bond quotes. To calculate the number of years until maturity, assume...

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

Homework Answers

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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