Question

Use the following Treasury quote to answer the following questions 1 and 2.

Treasury Quote (as of March 31, 2020)
Maturity	Coupon Rate (%)	Bid Price	Asked Price	Asked Yield (%)
3/31/2023	2.500	106.1420	106.1460	0.341

1.         Complete a time line for an investor buying the Treasury with $1,000 of par value. Your time line should identify the financial calculator variables (N, I/Y, PV, PMT, FV).

            0                           1                           2                                              

            |----------------------|----------------------|------  

2.       Complete a time line for a dealer buying the Treasury with $1,000 of par value. Your time line should identify the financial calculator variables (N, I/Y, PV, PMT, FV).

            0                           1                           2                                              

            |----------------------|----------------------|------  

Answer 1

I/Y = Bid Yield (from Dealer's perspective)
= Ask Yield (from Investor's Perspective)
N = 3 years (for both)
PMT = Coupon Rate * Face Value = 2.5% * 1000 = $25 (for both)
FV = Redemption Value or Face Value = $1000 (for both)
PV = $1061.42 (from Dealer's perspective)
= $1061.46   (from an Investor's Perspective)

Investor's Timeline

Dealer's Timeline

C D E B 3/31/2020 3/31/2023 2.50% 1,000.00 1,061.42 1,061.46 0.43% 0.43% A 1 Settlement Date 2 Maturity Date 3 Coupon Rate 4 Face Value 5 Bid Price 6 Ask Price 7 Bid Yield (Dealer's Yield) 8 Ask Yield (Investor's Yield) 9 10 11 Period 12 Date 13 PMT 14 Future Value 15 Total Cash Flow 16 Discounting Factor 17 Discounted Cash Flows Price of Bond Investor's Perspective 3 3/31/20203/31/2021/3/31/2022 3/31/2023 25.00 25.00 25.00 1,000.00 25.00 25.00 1,025.00 0.995683 0.991385 0.987106 24.89 24.78 1,011.78 1,061.46

A 1 Settlement Date 43921 2 Maturity Date 45016 3 Coupon Rate 0.025 4 Face Value 1000 5 Bid Price =106.142*B4/100 6 Ask Price =106.146*B4/100 7 Bid Yield (Dealer's Yield) =RATE(3,(B3*B4),-B5,B4,0) 8 Ask Yield (Investor's Yield) =RATE(3,83*B4,-B6,B4,0) 9 10 11 Period 12 Date 43921 13 PMT 14 Future Value 15 Total Cash Flow 16 Discounting Factor 17 Discounted Cash Flows Investor's Perspective =YEARFRAC(B12, C12) =C11+YEARFRAC(C12,012) 44286 44651 =$B$3*$B$4 =$B$3*$B$4 =D11+YEARFRAC(D12, E12) Price of Bond 45016 =$B$3* $B$4 =B4 =E13+E14 = 1/((1+$B$8)^E11) =E15*E16 =SUM(C17:E17) =C13+C14 =1/((1+$B$8)^C11) =C15*C16 =D13+D14 =1/((1+$B$8)^D11) =D15*D16

B 3/31/2020 3/31/2023 2.50% 1,000.00 1,061.42 1,061.46 0.43% 0.43% 1 Settlement Date 2 Maturity Date 3 Coupon Rate 4. Face Value 5 Bid Price 6 Ask Price 7 Bid Yield (Dealer's Yield) 8 Ask Yield (Investor's Yield) 9 10 11 Period 12 Date 13 PMT 14 Future Value 15 Total Cash Flow 16 Discounting Factor 17 Discounted Cash Flows Dealer's Perspective 0 1 1/2/1900 1/3/1900 Price of Bond 3/31/2020 3/31/2021 3/31/2022 3/31/2023 25.00 25.00 25.00 1,000.00 25.00 25.00 1,025.00 0.995670468 0.991359681 0.987067557 24.89 24.78 1,011.74 1,061.42