Question

You find the following Treasury bond quotes. To calculate the number of years until maturity, assume that it is currently May 2016. The bonds have a par value of $1,000.

Rate	Maturity Mo/Yr	Bid	Asked	Chg	Ask Yld
??	May 26	103.5462	103.5340	+.3015	5.999
6.252	May 31	104.4952	104.6409	+.4293	??
6.163	May 41	??	??	+.5405	4.031

In the above table, find the Treasury bond that matures in May 2041. What is the asked price of this bond in dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Asked price            $

If the bid-ask spread for this bond is .0654, what is the bid price in dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Bid price            $

Answer 1

(a)-Asked Price of this Bond

• The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.
• The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.
• Here, the calculation of the Bond Price using financial calculator is as follows

Variables	Financial Calculator Keys	Figures
Par Value/Face Value of the Bond [$1,000]	FV	1,000
Coupon Amount [$1,000 x 6.163% x ½]	PMT	30.815
Market Interest Rate or Yield to maturity on the Bond [10.00% x ½]	1/Y	2.0155
Maturity Period/Time to Maturity [(May 2016 to May 2041) x 2]	N	50
Bond Price	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $1,333.89.

“Hence, the Asked price of this Bond will be $1,333.89”

(b)- Bid price in dollars

Bid price in dollars = Asked Price for the Bond – Change in bid-ask spread in Dollars

= $1,333.89 - [$1,000 x (0.0654 / 100)]

= $1,333.89 - $0.6450

= $1,333.23