Question

You find the following Treasury bond quotes. To calculate the number of years until maturity, assume that it is currently May 2019 and the bond has a par value of $1,000.

Rate	Maturity Mo/Yr	Bid	Asked	Chg	Ask Yld
??	May 24	103.5540	103.5418	+.3093	6.119
5.524	May 29	104.5030	104.6487	+.4365	??
6.193	May 39	??	??	+.5483	4.151

a.	In the above table, find the Treasury bond that matures in May 2039. 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.)
b.	If the bid-ask spread for this bond is .0566, what is the bid price in dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Part a)

The asked price of the treasury bond maturing in May 2039 can be calculated with the use of PV (Present Value) function/formula of EXCEL/Financial Calculator. The function/formula for PV is PV(Rate,Nper,PMT,FV) where Rate = Interest Rate (here, YTM), Nper = Period, PMT = Payment (here, Coupon Payment) and FV = Future Value (here, Face Value of Bonds).

Here, Rate = 4.151%/2 = 2.0755%, Nper = (2039 - 2019)*2 = 40, PMT = 1,000*6.193%*1/2 = $30.965 and FV = $1,000 [since, the bond is treasury bonds, the coupon payments are made on semi-annual basis]

Using these values in the above function/formula for PV, we get,

Asked Price of Bond = PV(2.0755%,40,30.965,1000) = $1,275.64 (answer for Part a)

_____

Part b)

The bid-price in dollars is calculated as follows:

Bid-Price in Dollars = Asked Price - (Bid-Ask Spread/100)*Face Value of Bonds = 1,275.64 - (.0566/100)*1,000 = $1,275.07 (answer for Part b)