6.1 How much would an investor pay to buy one 4.5% Treasury bond of 2017 (see Ta
ID: 2726607 • Letter: 6
Question
6.1 How much would an investor pay to buy one 4.5% Treasury bond of 2017 (see Table 6.1 )? If a Treasury bond costs $1,106.25, how would this price be quoted? How much would he receive if he sold a 3% Treasury bond of 2042?.
Maturity Coupon Bid Price Asked Price Asked Yield, %
2015, May 15 4.125 107.7969 107.8203 0.23
2016, May 15 7.25 120.641 120.66 4 0.35
2017, May 1 5 4.5 115.6719 115.7031 0.54
2022, May 15 1 .75 100.9922 101.0078 1.63
2030, May 15 6.25 152.7422 152.8203 2.44
2037, May 15 5 138.7031 138.7813 2.78
2042, May 15 3 100.2422 100.2578 2.99
Explanation / Answer
The bond can immediately be bought at "Asked Price". So, an investor can buy one 4.5% treasury bond of 2017 at 115.7031, which means that he needs to pay 115.7031 x 10 = $1,157.031
Thje price quoted = $1,106.25/10 = 110.625
The bond can immediately be sold at "Bid Price". So, an investor can sell one 3% treasury bond of 2042 at 100.2422, which means that he would receive 100.2422 x 10 = $1,002.422
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