Homework Answers
FV = -1000000
PMT = -1000000 * 6% / 2 = 30000
Nper = 5 * 2 = 10
Rate = 9.90% / 2 = 4.95%
Value of treasury note can be calculated by using the following
excel formula:
=PV(rate,nper,pmt,fv)
=PV(4.95%,10,-30000,-1000000)
= $849,059.88
Value of treasury note = $849,059.88
The T-note described in this problem is selling at a
discount.
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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...
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