\" Increase \" or \" decrease\" ? Attempts: 4 2 Average: 3/4 4. Valuing semiannu

Question

" Increase " or " decrease" ? Attempts: 4 2 Average: 3/4 4. Valuing semiannual coupon bonds AaAa Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon U.S. Treasury note with five years to maturity (YTM) has a coupon rate of 5%. The yield to maturity of the bond is 7.70%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note: O $756,228.57 $889,680.67 O $560,498.82 O $1,067,616.80 Based on your calculations and understanding of semiannual coupon bonds, complete the following statement: Assuming that interest rates remain constant, the T-note's price is expected to increase increase . Flash Player MAC 27,0,0,187 2004-2016 Aplia All nghts reserved Grade It Now Continue without saving

Explanation / Answer

Treasury Note Value = $ 1000000 Coupon rate = 5% YTM = 7.70% Semi annual coupon rate = 2.5% Semi annual YTM = 3.85% Period = 5x2 = 10 Interest = 1000000 * 2.5% = 25000 Interest value 25000 pvifa 3.85%,10 = 25000 x 8.1712 = 204280 Par value 1000000 pvif 3.85% ,10 = 1000000 x 0.6854 = 685400 Total Value = 204280 + 685400 = 889680.67

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.