Question

1. A Superannuation fund is to restructure its balance sheet through the sale of $20 million of Treasury bonds that mature on 31 December 2024. The bonds pay a fixed half-yearly coupon of 5.00 per cent per annum. Settlement date for the sale is 20 August 2020. Current yields on Treasury bond are 6.50 per cent per annum. You are required to calculate:

1. n (number of periods)
2. i (current yield)
3. C (coupon payment)
4. k (fraction of elapsed interest period since the last coupon payment)
5. P (price at which the bonds will be sold).

Answer 1

i) The number of periods is 4 years, 4 months, 11 days.

ii) the current yield is 6.50%

iii) coupon rate is 5%

iv) fractrion is 51/365

v) Bond to be sold at is given below:

Resultant table:

.

The bond to be sold at 23.70 millions