Question

1. Assume that you held a Treasury note that makes coupon payments on May 15 and...

1. Assume that you held a Treasury note that makes coupon payments on May 15 and November 15. The number of days between each coupon payment is 184. Suppose you sold the bond on June 27, 2016. If the number of days between May 15 and June 27 is 43, the bond carried a coupon rate of 3.875% and matures as of May 15, 2026 ($1,000 par value),

a) What would have been the settlement (dirty) price on June 27, 2016 if the bond was priced to yield 4.0369%?

b) What was the accrued interest?

c) What was the market price (quoted on the Wall Street Journal)?

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Answer #1

Bond Mature on May 15, 2026 so number of year remains in maturity from May 15 2016 is 10 year.

Par value = $1,000

Coupon rate = 3.875%

c.

Quoted price of bond is calculated in excel and screen shot provided below:

Quoted price of bond is $986.79.

b,

Number of days between May 15 to November 15 = 184

Nuber of days between May 15 and June 27 = 43 days.

Accrued interest = $19.375 × (43 / 184)

= 4.53

Accrued interest is $4.53.

a.

Dirty Price = Quoted price - Accrued interest

= $986.79 - $4.53

= $982.26

Dirty price is $982.26.

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