Sam purchased a five-year Treasury note with a $1,000 face value and a 7.5% coup

Question

                                              Sam purchased a five-year Treasury note with a $1,000 face value and a 7.5% coupon rate.

1. Assume that the yield to maturity of the Treasury note equals 4%. Using the Excel spreadsheet, compute the price of this five-year Treasury note. Start by entering the appropriate coupon payment. Then use this payment and the yield to maturity to find the present value of the payments that come at the end of each year. Sum the present values to find the present value of the entire stream of payments and enter this value as your answer. Round to whole dollars.

2. Suppose that the yield to maturity rises from 4% to 6%. Using the Excel spreadsheet, find the new price of the five-year Treasury note. Start by entering the appropriate coupon payment. Then use this payment and the yield to maturity to find the present value of the payments that come at the end of each year. Sum the present values to find the present value of the entire stream of payments and enter this value as your answer.

Explanation / Answer

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YEAR PARTICULAR PAYMENT P.V. @ 4% 1 Interest Payment 75 $72.12 2 Interest Payment 75 $69.34 3 Interest Payment 75 $66.67 4 Interest Payment 75 $64.11 5 Interest Payment 75 $61.64 5 Principal Payment 1000 $821.93 PRICE $1,156

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