Locate the Treasury bond in Figure 6.3 maturing in February 2027. Is this a prem

Question

Locate the Treasury bond in Figure 6.3 maturing in February 2027. Is this a premium or a discount bond? What is its current yield? What is its yield to maturity? Yield to maturity What is the bid-ask spread? Bid-ask spread?

It is a premium bond because it is worth more than 100% bond value.

The current image of Figure 6.3 is not accurate. So here is the info for this item maturing in Feb. 2027:

Coupon     Bid       Asked     Chg     Asked Yield

6.625         137:25    137:27    +115    3.7165

There is just no related info in my book for what the question asks. It only showed us what the coupon rate was and how to determine the bid price and previous day's asking price.

Explanation / Answer

The current Yield of the bond would be 4.8062%, this can be calculated by dividing the annual cash inflows by the market price (6.625/137.8438). Assuming the bond has a $100 par value the annual cash inflows would be $6.625 and assuming you use the Mid price of the bid and ask (137:26) as the market price. As for Yield to Maturty, you would need to specify if we are calculing years to maturity from 2013 or another year. The bid ask spread is simply by how much the asked price exceeds the bid so in this case its 137:27-137:25 which is 2 32nds, since bonds are quoted using 32nds.

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