You are considering buying a 10-year U.S. Treasury bond at the upcoming Treasury auction. Assume that...

You are considering buying a 10-year U.S. Treasury bond at the upcoming Treasury auction. Assume that the bond has the following features: coupon rate: 2.27%, with semi-annual coupon payments Face value: $1,000 matures in 10 years In the auction, the annual yield to maturity determined by the auction is 2.92%. What is the price that you will pay for this bond? Do not round at intermediate steps in your calculation. Round your answer to the nearest penny. Do NOT include a minus sign! Do not type the $ symbol.

Expert Solution

Bond Price:
It refers to the sum of the present values of all likely coupon payments plus the present value of the par value at maturity. There is inverse relation between Bond price and YTM ( Discount rate ) and Direct relation between Cash flow ( Coupon/ maturity Value ) and bond Price.

Price of Bond = PV of CFs from it.

Bond Price Today:

Period	Cash Flow	PVF/ PVAF @1.46 %	Disc CF
1 - 20	$ 11.35	17.2365	$ 195.63
20	$ 1,000.00	0.7483	$ 748.35
Bond Price			$ 943.98

As Coupon Payments are paid periodically with regular intervals, PVAF is used.
Maturity Value is single payment. Hence PVF is used.

Periodic Cash Flow = Annual Coupon Amount / No. times coupon paid in a year
Disc Rate Used = Disc rate per anum / No. of times coupon paid in a Year

What is PVAF & PVF ???
PVAF = Sum [ PVF(r%, n) ]
PVF = 1 / ( 1 + r)^n
Where r is int rate per Anum
Where n is No. of Years

How to Calculate PVAF using Excel ???
+PV(Rate,NPER,-1)
Rate = Disc rate
Nper = No. of Periods

jeff jeffy answered 2 years ago

You are considering buying a 30-year U.S. Treasury bond but are nervous about the effect on...

You are considering buying a 30-year U.S. Treasury bond but are nervous about the effect on bond price if the yield to maturity on the bond increases. The bond has a 3% coupon rate and pays coupons semi-annually. The duration is 21 years. Suppose that interest rates on this bond rise by 1.1%. Calculate the corresponding percentage change in the price of the bond using the approximation method based on bond duration. Give your answer in percent to one decimal...

9. a. You’re considering buying a 10 year US Treasury 7% coupon bond with a face...

9. a. You’re considering buying a 10 year US Treasury 7% coupon bond with a face value of $1000. The bond pays coupons semi-annually. The next coupon will be paid in 6 months. The bond is currently selling for $977.12. Using Excel’s IRR command, determine the YTM of the bond. Express your answer as an effective annual rate (EAR). (Not at an APR). Report your answer as a decimal, not as a percent, using at least 4 significant digits....

You are considering buying a bond with a 10-year maturity. The bond’s coupon rate is 8%...

You are considering buying a bond with a 10-year maturity. The bond’s coupon rate is 8% and the interest rate is paid semiannually. If youu want to earn an effective interest rate of 8.16%, how much should you be willing to pay for the bond? Where the value is 1.000.000.000.

A 10-year U.S. Treasury bond with a par value of $ 1000 is currently selling for...

A 10-year U.S. Treasury bond with a par value of $ 1000 is currently selling for $ 1025. The bond carries a 7.5% p.a. coupon payable annually. If purchased today and held to maturity, what is its expected yield to maturity? Does your answer change if the coupon payments of 7.5% p.a. are made half-yearly (i.e. 3.75% every half -year)? How & why? Could you please show me step by step calculations so I can understand? thank you.

The current price of a 10-year U.S. Treasury Bond with 5 years to maturity and a...

The current price of a 10-year U.S. Treasury Bond with 5 years to maturity and a 4% coupon is $1,180. Assuming the usual maturity value of $1,000 and semi-annual coupon payments, what is the Yield to Maturity (YTM) for this bond

Was 10-year Treasury bond called Treasury Bill, Note, or Bond? What was the term ... that...

Was 10-year Treasury bond called Treasury Bill, Note, or Bond? What was the term ... that indicates the situation in which the yield of Treasury bonds sharply decreases because U.S. Treasury bonds are the safest assets? What is the meaning of finance? Is it not a gamble to earn more money using some seed money?

A 5-year Treasury bond has a 3.7% yield. A 10-year Treasury bond yields 7%, and a...

A 5-year Treasury bond has a 3.7% yield. A 10-year Treasury bond yields 7%, and a 10-year corporate bond yields 8.5%. The market expects that inflation will average 3% over the next 10 years (IP10 = 3%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities:...

A 5-year Treasury bond has a 4.8% yield. A 10-year Treasury bond yields 6.95%, and a...

A 5-year Treasury bond has a 4.8% yield. A 10-year Treasury bond yields 6.95%, and a 10-year corporate bond yields 9%. The market expects that inflation will average 2.55% over the next 10 years (IP10 = 2.55%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities:...

A 5-year Treasury bond has a 4.7% yield. A 10-year Treasury bond yields 6.15%, and a...

A 5-year Treasury bond has a 4.7% yield. A 10-year Treasury bond yields 6.15%, and a 10-year corporate bond yields 8.05%. The market expects that inflation will average 2.25% over the next 10 years (IP10 = 2.25%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities:...

You consider buying a Treasury zero (a special type of zero coupon bond backed by Treasury...

You consider buying a Treasury zero (a special type of zero coupon bond backed by Treasury bonds) with a face value at maturity of $10,000. The bond matures in 8 years. Suppose that other investors currently are willing to pay $5,678 for this bond. Given this information, we can deduce the annual discount rate (assuming annual compounding) that these investors are applying to value the Treasury zero. What is this rate? Express your answer in percent to three decimal places....

Question