1. Assume that you held a Treasury note that makes coupon payments on May 15 and...

1. Assume that you held a Treasury note that makes coupon payments on May 15 and November 15. The number of days between each coupon payment is 184. Suppose you sold the bond on June 27, 2016. If the number of days between May 15 and June 27 is 43, the bond carried a coupon rate of 3.875% and matures as of May 15, 2026 ($1,000 par value),

a) What would have been the settlement (dirty) price on June 27, 2016 if the bond was priced to yield 4.0369%?

b) What was the accrued interest?

c) What was the market price (quoted on the Wall Street Journal)?

Expert Solution

Settlement date	27-Jun-16
Redemption date	15-May-26
Coupon rate	3.88%
Coupon frequency	Half yearly
Face Value	1000
Yield	4.039%
number of days between each coupon payment is 184
number of days between last coupon payment date and settlement date is 43


			15-May-16																				15-May-26
		Period	0	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20
		Coupon/CF		19.375	19.375	19.375	19.375	19.375	19.375	19.375	19.375	19.375	19.375	19.375	19.375	19.375	19.375	19.375	19.375	19.375	19.375	19.375	1019.375
		Yield		0.020195	0.020195	0.020195	0.020195	0.020195	0.020195	0.020195	0.020195	0.020195	0.020195	0.020195	0.020195	0.020195	0.020195	0.020195	0.020195	0.020195	0.020195	0.020195	0.020195
		Disc. Factor		0.980205	0.9608014	0.941782	0.9231393	0.904866	0.8869535	0.869396	0.8521862	0.835317	0.8187816	0.802574	0.786687	0.771114	0.755849	0.740887	0.726221	0.711846	0.697754	0.683942	0.670403365
		PV of CF		18.99147	18.615527	18.24703	17.885824	17.53177	17.184724	16.84455	16.511107	16.18427	15.863894	15.54986	15.24205	14.94033	14.64458	14.35469	14.07054	13.79201	13.51899	13.25138	683.3924306
		Sum of CF	986.617022
		Clean price	986.617022


		Accrued Intt. =	19.375*43/184	4.527853


		Dirty Price =	Clean price + Accrued Interest
			991.1448753

a) Dirty price as calculated above

b) Accrued interest as calculated above

c) Market price is clean price as calculated above

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jeff jeffy answered 1 year ago

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