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

Hope you find the solution helpful, else please put in your comments below if you need further explanation. Kindly hit the "thumps up" button to rate this solution. Happy Learning :)

jeff jeffy answered 2 years ago

A Treasury Strips is sold for settlement on May 15, 2018. · Annual Coupon Rate 0%...

A Treasury Strips is sold for settlement on May 15, 2018. · Annual Coupon Rate 0% · Semi-annual compounding · Maturity Date: 15 October 2018 · Annual Yield-to-Maturity: 6% · Face Value: $100 · Day Count Convention: actual/actual Calculate the full price of the zero-coupon bond Hint: Note that in the case of a zero-coupon bond (with $100 par value), our bond pricing formula is simply where T is the time to maturity in years and P(T) is the (full)...

A 8.93% semiannual-pay corporate bond matures 15 August 2028 and makes coupon payments on 15 February...

A 8.93% semiannual-pay corporate bond matures 15 August 2028 and makes coupon payments on 15 February and 15 August. The bond uses the 30/360 day-count convention for accrued interest. The bond is priced for sale on June 5, 2020 (that is, 110 days since the Feb. 15 coupon). What is its flat price (or clean price) per $ 100 of par value on June 5, 2020 if its yield to maturity is 5.1%? Carry intermediate calcs. to four decimals. Answer...

A 9.81% semiannual-pay corporate bond matures 15 August 2028 and makes coupon payments on 15 February...

A 9.81% semiannual-pay corporate bond matures 15 August 2028 and makes coupon payments on 15 February and 15 August. The bond uses the 30/360 day-count convention for accrued interest. The bond is priced for sale on June 5, 2020 (that is, 110 days since the Feb. 15 coupon). What is its flat price (or clean price) per $ 100 of par value on June 5, 2020 if its yield to maturity is 5.7%? Carry intermediate calcs. to four decimals. Answer...

Morgan Stanley issued a range note. The coupon payments of the range note are computed on...

Morgan Stanley issued a range note. The coupon payments of the range note are computed on the basis of the coupon formula of 30-day Treasury bill rate + 50 basis points. If the floor and cap of the note are 2.0 percent and 4.5 percent respectively, what will be applicable coupon rate and coupon payments for $100 of par value under the following Treasury bills rates? 0.50%, 0.75%, 1%, 1.25%, 1.5%, 1.75%, 2%, 3.25%, 3.50%, 3.75%, 4%, 4.25%.

You can buy or sell a 4.125% coupon $1,000 par U.S. Treasury Note that matures in...

You can buy or sell a 4.125% coupon $1,000 par U.S. Treasury Note that matures in 6 years. The first coupon payment pays 6 months from now, and the Note pays coupons semi-annually until maturity. It also pays par on maturity. The Yield to Maturity of the Note right now is 4.000%. (a) What are the cash flows associated with this Note? Clearly identify which of these cash flows are annuity dues, ordinary annuities, or single cash flows. (b) What...

Assume that today you purchased a Treasury Note with the following characteristics: Par (face) value =...

Assume that today you purchased a Treasury Note with the following characteristics: Par (face) value = $1,000 Maturity = five years from today Coupon interest rate =5% ALL OTHER THINGS BEING EQUAL: If the prevailing interest rates for instruments of similar risk and maturity were to increase from 5% to 10% next week, what would happen to the value of your bond in the secondary market? Explain. (It is not necessary to calculate the yield to maturity. Simply explain the...

1. Today, you can buy a 15-year Treasury bond with a 3.8% coupon rate for $1067.49. Show...

1. Today, you can buy a 15-year Treasury bond with a 3.8% coupon rate for $1067.49. Show your work. Calculate the Yield-to-Maturity for this bond Assume the bond is callable 6 years from now for $1019. Based on this, calculate the Yield-to-Call for this bond Assume that YOUR required return for this bond is 3.5% (and ignore the call provision). Based on this, what is the most YOU would be willing to pay? Given that, would you be interested in buying...

If Mr. Putin pays $960 to buy a new 2-year Treasury note (T-note) with a coupon...

If Mr. Putin pays $960 to buy a new 2-year Treasury note (T-note) with a coupon rate of 6%, calculate the YTM (yield to maturity). Show the (condensed) time line and key steps of two methods. For the NS method, show the abbreviated equation/expression.

What is the price of a 2-year Treasury note with a 4.6% coupon rate and semiannual...

What is the price of a 2-year Treasury note with a 4.6% coupon rate and semiannual coupon payments if the annualized theoretical spot rates for 6-month, 12-month, 1.5-year, and 2-year maturities are 2.1%, 3.1%, 4.27%, and 5.42%, respectively? Express in % of par, round to 0.001. E.g., if your answer is 102.3785, record it as 102.379.

A ten-year Treasury note with a 5.000% coupon rate is sold at par value in the...

A ten-year Treasury note with a 5.000% coupon rate is sold at par value in the primary market (assume par value is $100). Bill purchases the Treasury note at a price of 103.000 when it has five years left to maturity and it has a 4.326% yield-to-maturity. Bill holds the Treasury note for three years and then sells it to George in the secondary market. George then holds the Treasury note to maturity. Assume three years from when Bill purchases...

Question