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A noncallable Treasury bond has a quoted yield of 4.78 percent. It has a 5.75 percent...

A noncallable Treasury bond has a quoted yield of 4.78 percent. It has a 5.75 percent coupon and 13 years to maturity. Assuming $1,000 par value. What is its quoted price?

Solutions

Expert Solution

Quoted price is $1,092.34

Working:

Price of bond is the present value of cash flows from bond -(a) Coupon Interest and (b) Maturity Value.

Present Value of coupon interest

$ 547.36

Present Value of Par Value

$ 544.98

Price of bond

$ 1,092.34

Working:

Annual coupon interest

Face Value x Coupon rate

$ 1,000.00

5.75%

$ 57.50

Cumulative discount factor

(1-(1+i)^-n)/i

Where,

(1-(1+0.0478)^-13)/0.0478

4.78%

9.51924

Discount factor for 13th period

1.0478^-13

0.54498

Present Value of coupon interest

Coupon Interest x Cumulative discount factor

$ 57.50

9.51924

$ 547.36

Present Value of Par Value

Par Value x discount factor

$ 1,000.00

0.54498

$ 544.98

jeff jeffy answered 1 year ago

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