Solution to the FIRST QUESTION
Value of the Treasury Note
· The Treasury Note Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.
· The Price of the Treasury Note is normally calculated either by using EXCEL Functions or by using Financial Calculator.
· Here, the calculation of the Treasury Note using financial calculator is as follows
Variables |
Financial Calculator Keys |
Figures |
Par Value/Face Value of the Treasury Note [$1,000,000] |
FV |
1,000,000 |
Coupon Amount [$1,000,000 x 4.00% x ½] |
PMT |
20,000 |
Market Interest Rate or Yield to maturity on the Bond [8.80% x ½] |
1/Y |
4.40 |
Maturity Period/Time to Maturity [2 Years x 2] |
N |
4 |
Treasury Note Price |
PV |
? |
Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the value of the Treasury Note = $913,697.55.
“Hence, the value of the Treasury Note will be $913,697.55”
The T-Note described in this problem is selling at a “DISCOUNT” [Because, the Value of the Treasury Note is less than the Par Value of the Treasury Note].
7. Valuing semiannual coupon bonds Bonds often pay a coupon twice a year. For the valuation...
8. Risks of investing in bonds The higher the risk of a security, the higher its expected return will be. A bond's risk level is reflected in its yield, but understanding the different risks involved when investing in bonds is important. The following graph shows the relationship between interest rates and maturity for three security classes: US Treasury securities (USTS), AA-rated corporate bonds, and BBB-rated corporate bonds. Use the selection dropdown lists to correctly associate each curve with its corresponding...
7. Valuing semiannual coupon bonds Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon US Treasury note with three years to maturity has a coupon rate of 3%. The yield to maturity (YTM) of...
7. Valuing semiannual coupon bonds Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon US Treasury note with two years to maturity has a coupon rate of 4%. The yield to maturity (YTM) of...
7. Valuing semiannual coupon bonds Aa Aa E Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon U.S. Treasury note with five years to maturity (YTM) has a coupon rate of 3%. The yield...
5. Valuing semiannual coupon bonds Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon US Treasury note with five years to maturity has a coupon rate of 6%. The yield to maturity (YTM) of...
7. Valuing semiannual coupon bonds Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon US Treasury note with three years to maturity has a coupon rate of 3%. The yield to maturity (YTM) of...
7. Valuing semiannual coupon bonds Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon US Treasury note with five years to maturity has a coupon rate of 3%. The yield to maturity (YTM) of...
Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon U.S. Treasury note with five years to maturity (YTM) has coupon rate of 3%. The yield to maturity of the bond is 7.70%. Using this...
4. Valuing semiannual coupon bonds Aa Aa Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon US Treasury note with three years to maturity (YTM) has a coupon rate of 6%. The yield to...
O v e wnen investing in bonds is important The curves on the following graph show the prices of two 10% annual coupon bonds at various interest rates BOND VALUE 151 Based on the graph, which of the following statements is true? Neither bond has any interest rate risk. O The 1-year bond has more interest rate nisk Both bonds have equal interest rate risk The 10-year bond has more interest rate risk Frank Barlown is retiring soon, so he's...