The following is a list of treasury notes and bond quotes from Table 6 - 1 in yo
ID: 2783036 • Letter: T
Question
The following is a list of treasury notes and bond quotes from Table 6 - 1 in your book. 2021 May bond is a Treasury STRIP (principal) Bond. Assume the par value of both bonds is $10,000. These quotes are as of July 16th, 2013. Please use these figures as shown to answer question 5.
Maturity coupon bid asked asked yield
2017 May 31 2.75 106.6875 106.7188 0.977
2021 May 15 -- 84.038 84.103 2.22
A. Verify the coupon rate on the 2017 May 31 treasury bond as of July 16th 2013. That is, show the coupon rate on this bond is 2.75%. The number of years between July 16th 2013 and May 31st 2017, after adjusting for a two-day settlement, is 3.8712 years.
B. Verify the asked yield on 2021 May 15 Treasury STRIP bond is 2.22%. The number of years between July 16th 2013 and may 15th 2021, after adjusting for a two day settlement period, is 7.8301 years.
(show financial calculator functions used, PV, FV, PMT, N, i ect..)
Explanation / Answer
Assuming semi-annual payments on the bond,
A.) Bond Price =${(275/2)x{(1-(1+0.00977/2)-7/(0.00977/2)}+ 10,000/(1+0.00977/2)7 }/(1+0.00977/2)(2x0.8712-1) + Accrued Interest
= $ {943.9650 + 9,664.6349}x0.9964 + 0.3712*275
= $ 10,608.0000x0.9964 + 102.08
= $ 10,570.2896 + 102.08
= $ 10,672.36
or the Ask Price =106.72
B.) Since it is a treasury strip, there will be no interim coupon payments,
8,410.30 =10,000/(1+r)7.8301
=> (1+r)7.8301 = 1.1890
=> 1+r =1.022
=> r =0.022
Hence, the yield is 2.2%
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