1) A 5‐year T‐Note with the face value of $10,000 pays 4% coupon rate. If the...

1) A 5‐year T‐Note with the face value of $10,000 pays 4% coupon rate. If the current interest rate is 1%, what is the price for this bond? (Set up the relevant equation to solve.

Solutions

Expert Solution

The price of the T-note is equal to the present value of all future cashflows. The future cashflows will be the coupon at the end of each year and the amount paid at maturity equal to face value. This will be discounted at the current interest rate.

Face value = $10000

Coupon value = 4% of 10000 = $400

Interest rate = 1% = 0.01

Rahul Sunny answered 2 years ago

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