Question
You are considering buying a 10-year U.S. Treasury bond at the upcoming Treasury auction. Assume that...
You are considering buying a 10-year U.S. Treasury bond at the upcoming Treasury auction. Assume that the bond has the following features:
coupon rate: 3.88%, with semi-annual coupon payments
Face value: $1,000
matures in 10 years
In the auction, the annual yield to maturity determined by the auction is 2.51%.
What is the price that you will pay for this bond?
Do not round at intermediate steps in your calculation. Round your answer to the nearest penny. Do NOT include a minus sign! Do not type the $ symbol.
Homework Answers
Answer #1
Face value = 1,000
Coupon payment = 0.0388 * 1000 = 38.8 / 2 = 19.4 ( since it is a semi annual bond, we divide by 2)
Number of periods = 10 * 2 = 20 ( since it is a semi annual bond, we multiply by 2)
Rate = 0.0251 / 2 = 0.01255 or 1.255%
Bond price = 19.4 * [ 1 - [ 1 / ( 1 + 0.01255)20]] / 0.01255 + 1000 / ( 1 + 0.01255)20
Bond price = 19.4 * [ 1 - 0.779239] / 0.01255 + 1000 / 1.283304
Bond price = 19.4 * 17.590518 + 779.23859
Bond price = 341.256049 + 779.23859
Bond price = 1,120.5
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