Locate the Treasury issue in Figure 7.4 maturing in August 2039. Assume a par va

Question

Locate the Treasury issue in Figure 7.4 maturing in August 2039. Assume a par value of $10,000. Is this a preium or a discount bond? What is its current yield? What is its yield to maturity? What is the bid-ask spread in dollars? Assume a par value of $10,000

Treasury Notes and Bonds Chg Maturity 8/31/2011 5/15/2018 2/28/2019 2/29/2020 8/15/2021 11/15/2022 8/15/2023 2/15/2024 2/15/2026 8/15/2026 2/15/2027 8/15/2027 8/15/2028 11/15/2028 2/15/2029 8/15/2029 5/15/2030 2/15/2031 2/15/2036 2/15/2037 2/15/2038 2/15/2039 8/15/2039 2/15/2040 2/15/2041 8/15/2041 2/15/2042 5/15/2042 2/15/2043 2/15/2044 Coupon 1.875 3.875 1.375 1.250 8.125 1.625 2.500 2.750 6.000 6.750 6.625 6.375 5.500 5.250 5.250 6.125 6.250 5.375 4.500 4.750 4.375 3.500 4.500 4.625 4.750 Bid 102.8828 110.3125 98.6953 95.7734 140.1328 92.1563 98.0703 99.6094 130.2813 138.7500 137.9219 135.6875 126.2891 123.3828 123.3594 134.5156 136.8359 125.8984 114.7578 118.7813 112.6016 97.7422 114.766 116.9609 119.2969 101.3047 89.8516 87.4688 89.2969 98.2011 Asked 102.9141 110.750 98.7109 95.8203 140.1797 92.2031 98.1328 99.6719 130.3594 138.8281 138.0000 135.7656 126.3672 123.4609 123.4375 134.5938 136.9141 125.9766 114.8359 118.8594 112.6797 97.8203 114.8438 116.9922 119.3438 101.3828 89.8672 87.4844 89.3594 98.2656 –0.1563 –0.3125 –0.3516 – 0.3750 –0.5234 –0.4063 –0.4453 –0.4844 –0.6875 –0.7266 –0.7422 –0.7422 0.7422 –0.7031 –0.7031 –0.7500 –0.7813 – 0.7266 –0.7266 –0.7422 –0.7031 –0.5938 –0.6953 –0.6875 –0.7344 –0.6875 –0.5938 –0.6016 –0.6094 –0.6797 Asked Yield 1.019 1,317 1.646 1.996 2.231 2.635 2.726 2.788 2.962 2.989 3.048 3.100 3.204 3.230 3.256 3.256 3.289 3.352 3.523 3.542 3.582 3.634 3.604 3.610 3.620 3.670 3.711 3.720 3.729 3.721 3.750 3.125 3.000 3.125 3.625

Explanation / Answer

It is a premium bond as price is more than 100% of par value

Current Yield = Annual Coupon Payment/ Current Price

The current yield is based on the asked price

Current Yield = 4.750% * 10,000/ 114.8438% * 10,000

Current Yield = 4.14%

YTM = 3.604%

Bid - Ask Spread = 10,000 * (114.7656 - 114.8438)/ 100

Bid - Ask Spread = -7.82

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