In: Finance
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)?
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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