Question

A. On July 1, 2015 you purchase a $1,000 par T-Note that matures in 10 years. The coupon rate is 8% and the price quote is 98.15. The last coupon payment was May 1, 2015 (63 days before the settlement) and the next is November 1, 2015 (185 days total). a. What is the dirty price? (5 points) b. What is the yield to maturity? (5 points)

Answer 1

1) Calculation of Dirty Price :

Price Quote for bond= $ 98.15

* It is assumed that this price is quoted for bond only and interest not included in it

Interest for 63 days = $ 100* .08*63/365 =$ 1.381

Dirty Price = 98.15 + 1.381 = $ 99.531

2)

Yield to maturity( YTM)

Price Quoted = $ 98.15

Interest Price = $ 1.381

Amount paid = 99.531

Value of amount paid 63 days back i. e. 01/05/2015 = 99.531* ( 1/1+.08/365*63) = $ 98.176

YTM: - (Interest/2+ ( Redemption value - Paid )/n*2)/Paid = (8/2+(100-98.176)/10*2)/98.176 = (4+.09)/98.176 = 4.166 %

YTM(per annum) = 4.166 *2 = 8.332 %