In: Finance
what is the price in dollar of the February 2000 Treasury note with semiannually payment if its par value is $100,000? what is the current yield of this note?
Treasury notes and bonds. use the information in the
following table
today is February 15, 2008
type,issue, price, coupon,maturity, YTM,current, rating
type.
bond
issue.
Feb 2000
price.
-
coupon rate. 6.00%
Maturity date. 2-15_2010
YTM.
3.819%
current
yield.
-
rating.
AAA
Price of the Treasury note = Present value of all the future
coupon payments and the par value of the note.
Given:
Coupon rate = 6%
Coupon C = 6%*100000 / 2 = $3000
YTM r = 3.819%/2 = 1.9095%
Number of periods n = 10 * 2 = 20
Par Value FV = 100000
Price = C*PVIFA(r%,n) + FV*PVIF(r%,n)
= C*[ 1-
(1+r)-n ] / r + FV / (1+r)n
= 3000
* [ 1 - (1 + 0.019095)-20 ] / 0.019095 + [100000 /
(1+0.019095)20 ]
= 3000 * [ 1
- (1.019095)-20 ] / 0.019095 + [100000 /
(1.019095)20 ]
= 3000* [ 1
- (1.4598)-20 ] / 0.019095 + [100000 / 1.4598 ]
= 3000* [ 1-
0.685025 ] / 0.019095 + 68502.53
= 3000*16.49514 +
68502.53
= 49485.43 +
68502.53
=
$117987.953
Bond Price = $117987.95
b) Current yield = Annual interest payment / Bond Price
= 6%*100000 / 117987.95
= 6000 / 117987.95
= 5.09%
Current yield of the note = 5.09%