Question

Treasury notes and bonds. Use the information in the following​ table: What is the price in dollars of the February 2000 Treasury note with semiannual payment if its par value is $100,000?What is the current yield of this​ note?

Today is February​ 15, 2008
Type	Issue Date	Price	Coupon Rate	Maturity Date	YTM	Current Yield	Rating
Note	Feb 2000	–	7.50​%	​2-15-2010	4.599​%	–	AAA

What is the price in dollars of the February 2000 Treasury​ note?

​________% (Round to the nearest​ cent.)

What is the currrent yield of the February 2000 Treasury​ note?

________% (Round to three decimal​ places.)

Answer 1

The value of the bond is computed as shown below:

The coupon payment is computed as follows:

= 7.5% / 2 x $ 100,000 (Since the payments are semi annually, hence divided by 2)

= $ 3,750

The YTM will be as follows:

= 4.599% / 2 (Since the payments are semi annually, hence divided by 2)

= 2.2995%

N will be as follows:

= (2010 - 2008) x 2 (Since the payments are semi annually, hence multiplied by 2)

= 4

So, the price of the bond is computed as follows:

Bonds Price = Coupon payment x [ [ (1 - 1 / (1 + r)ⁿ ] / r ] + Par value / (1 + r)ⁿ

= $ 3,750 x [ [ (1 - 1 / (1 + 0.022995)⁴ ] / 0.022995 ] + $ 100,000 / 1.022995⁴

= $ 3,750 x 3.780214968 + $ 91,307.39568

= $ 105,483.20

Current yield will be as follows:

= Annual coupon payment / Current price

= $ 7,500 / $ 105,483.20

= 7.11%

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