Question

Use the following Treasury quote to answer parts a – i.

Maturity	Coupon Rate (%)	Bid Price	Asked Price	Asked Yield (%)
2/15/2050	2.000	115.0200	115.0400	1.1381

a.         Does the Treasury quote identify the yield to maturity? If so, what is the yield to maturity?
b.         Does the Treasury quote identify the coupon rate? If so, what is the coupon rate?
c.         Does the Treasury quote identify the current yield? If so, what is the current yield?
d.         Is the note/bond selling at discount, par, or premium?
e.         What price would an investor pay to buy the bond?
f.          What would be the total cost for an investor to buy $50,000 of par value?
g.         What price would a dealer pay to buy the bond?
h.         What would be the total cost for a dealer to buy $50,000 of par value?
i.          If a dealer bought and sold $400,000 of par value, how much would the dealer earn?

Please answer A-I

Answer 1

a]

Yes, the quote identifies the YTM. The YTM is 1.1381%

b]

Yes, the quote identifies the coupon rate. The coupon rate is 2.000%

c]

No, the quote does not identify the current yield

d]

The bond is selling at a premium (the price is above par value)

e]

Price paid = ask price = $115.04 per $100 of par value

f]

total cost = price as a % of par * par value

total cost = 115.04% * $50,000

total cost = $57,520

g]

Price paid = bid price = $115.02 per $100 of par value

h]

total cost = price as a % of par * par value

total cost = 115.02% * $50,000

total cost = $57,510

i]

Amount earned = par value * (ask price - bid price) / 100

Amount earned = $400,000 * (115.04 - 115.02) / 100

Amount earned = $80