Question
In: Finance
Henry is planning to purchase a Treasury bond with a coupon rate of 2.12% and face...
Henry is planning to purchase a Treasury bond with a coupon rate of 2.12% and face value of $100. The maturity date of the bond is 15 May 2033.
(a) If Henry purchased this bond on 5 May 2018, what is his purchase price (rounded to four decimal places)?
Assume a yield rate of 3.62% p.a. compounded half-yearly.
Solutions
Expert Solution
The purchase price of bond can be calculated using the PRICE function in spreadsheet
PRICE(settlement, maturity, rate, yield, redemption, frequency, [day_count_convention])
Where, settlement - The settlement date of the security, the date after issuance when the security is delivered to the buyer = 5 May 2018
maturity - The maturity or end date of the security, when it can be redeemed at face or par value = 15 May 2033
rate - The annualized coupon rate = 2.12%
yield - The expected annual yield of the security = 3.62%
redemption - The redemption amount per 100 face value = $100
frequency - The number of interest or coupon payments per year = 2 (US treasury bond has semi-annual coupon frequency)
day_count_convention - An indicator of what day count method to use = 1 (US treasury bond uses ACT/ACT day count convention)
Purchase price of bond = PRICE(5 May 2018, 15 May 2033, 2.12%, 3.62%, 100, 2, 1) = $82.7310
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