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?

Answer 1

a. Yes, the Treasury quote identifies the yield to maturity. it is the asked yield of 1.1381% which is the annualized yield to maturity if you hold the bond till maturity.

b. Yes, the Treasury quote identifies the coupon rate. coupon rate is 2.000%.

c. No, the Treasury quote does not identify the current yield. current yield is: annual coupon/current treasury price.

d. the note/bond is selling at premium because asked price quoted as percent of par value is 115.0400% which means current price of note/bond is 115.0400% of par value. if par value is $1,000 then price is $1,000*115.0400% = $1,150.4‬0. asked price is the price at which dealer is willing to sell the note/bond.