a. Suppose a 7.2% semi-annual coupon 20-year Treasury issue with a par value of $100 issue...

a. Suppose a 7.2% semi-annual coupon 20-year Treasury issue with a par value of $100 issue is priced in the market based on the on-the-run 20-year Treasury yield. Assume further that this yield is 5.60%, so that each cash flow is discounted at 5.60% divided by 2. What is the market price of the Treasury issue based on this assumption? b. Suppose also that the price of the same Treasury issue would be $115.285 if it is calculated based on the prevailing Treasury spot rate curve. What action would a dealer take and what would the arbitrage profit be? Can this situation persist in the long run?

Expert Solution

Please give positive vote , let me know if you need anyfurther information regaring the question

jeff jeffy answered 2 years ago

a. Suppose a 7.2% semi-annual coupon 20-year Treasury issue with a par value of $100 issue...

a. Suppose a 7.2% semi-annual coupon 20-year Treasury issue with a par value of $100 issue is priced in the market based on the on-the-run 20-year Treasury yield. Assume further that this yield is 5.60%, so that each cash flow is discounted at 5.60% divided by 2. What is the market price of the Treasury issue based on this assumption? b. Suppose also that the price of the same Treasury issue would be $115.285 if it is calculated based on...

8) a. Suppose a 7.6% semi-annual coupon 20-year Treasury issue with a par value of $100...

8) a. Suppose a 7.6% semi-annual coupon 20-year Treasury issue with a par value of $100 issue is priced in the market based on the on-the-run 20-year Treasury yield. Assume further that this yield is 6.20%, so that each cash flow is discounted at 6.20% divided by 2. What is the market price of the Treasury issue based on this assumption? b. Suppose also that the price of the same Treasury issue would be $108.462 if it is calculated based...

If a semi-annual bond has par-value is $100, 5% coupon and 8years of remaining maturity,...

If a semi-annual bond has par-value is $100, 5% coupon and 8 years of remaining maturity, what would be the market price if yield is 6% 100, 106.78, 93.71, or none of the above

A 20 yr maturity bond with par value of $1000 makes semi-annual coupon payment at a...

A 20 yr maturity bond with par value of $1000 makes semi-annual coupon payment at a coupon rate of 8%. What is the effective annual yield if the bond price is $950? The answer is 8.7% Please show work, USING THE BA CALCULATOR. Thank you.

What is the YTM of a four-year semi-annual coupon bond with a par value of $1,000...

What is the YTM of a four-year semi-annual coupon bond with a par value of $1,000 and a 6% coupon rate when the bond is priced at $940?

An 8-year $1,000 par Treasury bond pays a 7 percent semi-annual coupon. The bond has a...

An 8-year $1,000 par Treasury bond pays a 7 percent semi-annual coupon. The bond has a conversion factor of 1.025. The risk-free is 6 percent and the annual yield on the bond is 7 percent. The bond just made a coupon payment. The price of a 15-month futures contract is closest to: A. $1 049.32 B. $979.00 C. $983.32

A bond with a par value of $1,000 has a 6% coupon rate with semi-annual coupon...

A bond with a par value of $1,000 has a 6% coupon rate with semi-annual coupon payments made on July 1 and January 1. If the bond changes hands on November 1, which of the following is true with respect to accrued interest? The buyer will pay the seller $20 of accrued interest The seller will pay the buyer $20 of accrued interest The buyer will pay the seller $10 of accrued interest The seller will pay the buyer $10...

21. If a 3-year, semi-annual bond ($1,000 par value) has an annual coupon rate of 8...

21. If a 3-year, semi-annual bond ($1,000 par value) has an annual coupon rate of 8 percent, and an annual yield to maturity of 6 percent, then calculate Macaulay's duration of the bond using the table format demonstrated in the video (not the equation)

Suppose a 2 year 5% (annual coupon) bonds are selling at par (that is, for $100...

Suppose a 2 year 5% (annual coupon) bonds are selling at par (that is, for $100 of face value, the price is equal to $100) and 1 year zero coupon bonds has a yield to maturity of 7%. (a) What are the 1-year and 2-year interest rates, r1 and r2, respectively? (b) What should be the price of a two year 8% coupon bond with a face value of $100? (c) What are the Durations of 5% coupon bonds and...

Assume a par value of $1,000. Caspian Sea plans to issue a 10.00 year, semi-annual pay bond that has a coupon rate of 7.86%

Assume a par value of $1,000. Caspian Sea plans to issue a 10.00 year, semi-annual pay bond that has a coupon rate of 7.86%. If the yield to maturity for the bond is 8.11%, what will the price of the bond be?

Question

a. Suppose a 7.2% semi-annual coupon 20-year Treasury issue with a par value of $100 issue...

Solutions

Expert Solution

Related Solutions

a. Suppose a 7.2% semi-annual coupon 20-year Treasury issue with a par value of $100 issue...

8) a. Suppose a 7.6% semi-annual coupon 20-year Treasury issue with a par value of $100...

If a semi-annual bond has par-value is $100, 5% coupon and 8years of remaining maturity,...

A 20 yr maturity bond with par value of $1000 makes semi-annual coupon payment at a...

What is the YTM of a four-year semi-annual coupon bond with a par value of $1,000...

An 8-year $1,000 par Treasury bond pays a 7 percent semi-annual coupon. The bond has a...

A bond with a par value of $1,000 has a 6% coupon rate with semi-annual coupon...

21. If a 3-year, semi-annual bond ($1,000 par value) has an annual coupon rate of 8...

Suppose a 2 year 5% (annual coupon) bonds are selling at par (that is, for $100...

Assume a par value of $1,000. Caspian Sea plans to issue a 10.00 year, semi-annual pay bond that has a coupon rate of 7.86%