Question

The ask yield on a 6 percent coupon Treasury bond maturing in eight years is 5.488 percent. If the face value is $1,000, what should be the QUOTED cost of the bond today (use semiannual compounding)?

A. 103.2795

B. 107.2542

C. 106.8542

D. 108.5511

E. 104.3678

Answer 1

Par value					$1,000.00
Coupon Interest rate =					6%
Semiannual coupon rate					3%
Interest per coupon		(1000*3%) =			$30.00
YTM rate					5.488%
Semiannual YTM rate =					2.744%
No. of years					8
No. of periods (10 Years * 2)					16
Calculation of price of bond @ 2.744% YTM
Annual Interest received =				30.00
Cumulative P.V.F. @ 2.744 % for 16 periods =
(1- ((1/(1.02744)^16)))/0.02744				12.81050102
Present value of interest received (30 * 12.81050)					$384.32
Maturity amount received =				1000
P.V.F. @ 2.744 % for 16 th period =				0.648479852
(1/(1+0.02744)^16)
Present value of Maturity amount(1000*0.648479)					$648.48
Price of bond					$1,032.79
Quoted price of bond = 1032.79/1000 * 100 =					103.2794883
So, Quoted price of bond is 103.2795%. Answer A.