Question

In: Finance

What is the price value of a basis point (DV01) for a 10 year 6% Treasury...

What is the price value of a basis point (DV01) for a 10 year 6% Treasury bond trading at par?

Expert Solution

Price value of basis shows the money change in price of bond when YTM changes by 1 basis point of 0.01%

Increase in YTM by 0.01%:

Since bond is trading at par, YTM is equal to coupon rate

Assuming face value to be $1000.

YTM = 6%

New YTM = 6% + 0.01% = 6.01%

Coupon = 6% of 1000 = 60

Price = Coupon * [1 - 1 / (1 + r)^n] / r + FV / (1 + r)^n

Price = 60 * [1 - 1 / (1 + 0.0601)^10] / 0.0601 + 1000 / (1 + 0.0601)^10

Price = 60 * [1 - 0.557868] / 0.0601 + 557.868263

Price = 60 * 7.356601 + 557.868263

Price = $999.2643

Decrease in YTM by 0.01%:

Since bond is trading at par, YTM is equal to coupon rate

Assuming face value to be $1000.

YTM = 6%

New YTM = 6% - 0.01% = 5.99%

Coupon = 6% of 1000 = 60

Price = Coupon * [1 - 1 / (1 + r)^n] / r + FV / (1 + r)^n

Price = 60 * [1 - 1 / (1 + 0.0599)^10] / 0.0599 + 1000 / (1 + 0.0599)^10

Price = 60 * [1 - 0.558922] / 0.0599 + 558.921838

Price = 60 * 7.363575 + 558.921838

Price = $1,000.7364

Price value of a basis point = (1,000.7364 - 999.2643) / 2

Price value of a basis point = 0.74

jeff jeffy answered 1 year ago

A.) What is the price of a Treasury STRIPS with a face value of $100 that...

A.) What is the price of a Treasury STRIPS with a face value of $100 that matures in 12 years and has a yield to maturity of 6.5 percent? (Do not round intermediate calculations. Round your answer to 2 decimal places.) B.) A Treasury STRIPS is quoted at 93.333 and has 4 years until maturity. What is the yield to maturity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

1 year Treasury rates are 2%, while 2 year Treasury rates are 6%. What is the...

1 year Treasury rates are 2%, while 2 year Treasury rates are 6%. What is the expected 1 year Treasury rate one year from today?

What is the price of a Treasury STRIPS with a face value of $100,000 that matures...

What is the price of a Treasury STRIPS with a face value of $100,000 that matures in 14 years and has a yield to maturity of 10 percent? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

What is the YTM of a 10 year, 6% annual coupon bond with a price of...

What is the YTM of a 10 year, 6% annual coupon bond with a price of $980? (Please answer as a percentage with no percent sign, showing 4 significant digits.)

The current price of a 10-year U.S. Treasury Bond with 5 years to maturity and a...

The current price of a 10-year U.S. Treasury Bond with 5 years to maturity and a 4% coupon is $1,180. Assuming the usual maturity value of $1,000 and semi-annual coupon payments, what is the Yield to Maturity (YTM) for this bond

Was 10-year Treasury bond called Treasury Bill, Note, or Bond? What was the term ... that...

Was 10-year Treasury bond called Treasury Bill, Note, or Bond? What was the term ... that indicates the situation in which the yield of Treasury bonds sharply decreases because U.S. Treasury bonds are the safest assets? What is the meaning of finance? Is it not a gamble to earn more money using some seed money?

What is price of Treasury Strips with a face value of $10,000 that matures in 6.5...

What is price of Treasury Strips with a face value of $10,000 that matures in 6.5 years with a yield to maturity of 4.3%? How much does the price change if the yield to maturity is only 3.2%? What is the yield to maturity if the price of the Strips is $7,849? How much would the price be if this YTM was applied to a 8.5 year maturity instead of 6.5?

1. What is the price of a 6% coupon rate, 10 year maturity bond if the...

1. What is the price of a 6% coupon rate, 10 year maturity bond if the YTM=5%? (FV=1000) 2. What is the yield on a discount basis of a 2 year discount bond with a price of $965? (FV=1000) 3. You just bought a car and took out a 72 month loan to pay for it. If you borrowed $20,000 and your annual interest rate is 3.70%, what are your monthly payments? 4. What is the YTM of a 5...

What is the price of a 10-year, $1,000 bond with a 6% coupon rate and semiannual...

What is the price of a 10-year, $1,000 bond with a 6% coupon rate and semiannual coupons if the bond’s yield to maturity is 9% (APR with semiannual compounding)? $864.10 $1,038.07 $804.88 $1,077.95 Consider a project with the following cash flows: Year 0 1 2 3 4 Cash Flow -10,000 4,000 4,000 4,000 4,000 What is the internal rate of return (IRR) of the above project? 23.23% 22.05% 21.86% 20.82% Security: AAA AA A BBB BB Yield (%): 5.0 5.5 6.0 6.4 8.0 A mining company needs to raise $100 million in order to begin open pit mining...

Consider a 10-year 6 percent coupon bond. What is the price of this bond if the...

Consider a 10-year 6 percent coupon bond. What is the price of this bond if the market yield is 6%? What is the price of this bond if the market yield is 7%? What is the price of this bond if the market yield is 5%?