Question

Locate the Treasury issue in Figure 7.4 maturing in May 2030. Assume a par value of $10,000.

a.	What is its coupon rate? (Enter your answer as a percent rounded to 3 decimal places, e.g., 32.161.)
b.	What is its bid price in dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c.	What was the previous day’s asked price in dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Attn: Notes from Instructor

Treasury Notes and Bonds Maturity Coupon Bid Asked Chg Asked Yield 100.1484 100.1641 0.0391 1.160 1.250 0.875 1.286 1.125 8.125 2.000 1.500 2.500 6.875 99.0859 98.6094 127.5000 99.9766 96.5859 101.9531 0.0625 0.1016 0.2344 0.2266 0.2500 0.3125 0.3438 0.2969 0.4688 1.558 1.857 2.004 2.096 2.210 2.262 2.380 1.500 2.414 6.375 5.500 0.4531 5.250 5.250 11/15/2018 4/15/2019 4/30/2020 8/15/2021 7/31/2022 2/28/2023 5/15/2024 8/15/2025 8/15/2026 8/15/2027 8/15/2028 11/15/2028 2/15/2029 8/15/2029 5/15/2030 2/15/2031 2/15/2036 2/15/2037 5/15/2037 5/15/2038 2/15/2039 8/15/2039 2/15/2040 11/15/2040 2/15/2041 2/15/2042 2/15/2043 5/15/2043 2/15/2044 2/15/2045 11/15/2046 99.0703 98.5938 127.4844 99.9609 96.5703 101.9375 135.8438 92.4766 136.8281 130.2891 128.1563 128.7578 139.1875 142.5781 134.3438 128.0781 131.7891 135.9531 128.0625 110.9844 127.4922 129.7188 2.473 2.485 2.478 2.478 2.478 2.470 2.618 6.125 6.250 5-375 4.500 4.750 5.000 4.500 3.500 4.500 4.625 135.8594 92.4922 136.8438 130.3516 128.2188 128.8203 139.2500 142.6406 134.4063 128.1406 131.8516 136.0156 128.1250 111.0469 127-5547 129.7813 123.4063 132.5000 103-3828 103.1719 98.3906 112.7578 90.7891 98.1484 0.4453 0.4609 0.5391 0.5938 0.5625 0.7031 0.7500 0.7656 0.6875 0.6406 0.7344 0.6953 0.7422 0.7578 0.6484 0.6250 0.5625 0.6484 0.6016 0.6719 4.250 4.750 3.125 3.125 2.875 3.625 2.500 2.875 123-3438 132.4688 103-3516 103.1406 98.3594 112.7266 90.7578 98.1172 2.690 2.749 2.824 2.839 2.855 2.885 2.872 2.934 2.950 2.963 2.939 2.987 2.969

In the hints, the bid and asked prices are quoted with colon “:”, not a dot “.”. That means, those prices are in 32nds (1/32). The chgs are also in 32nds. However, in this exercise question and in the textbook, the prices in Figure 7.4 are quoted with “.”, they are already in %. For example, if the bid price is quoted as 100.1484, it is 100.1484% of the par value, so dollar value is 100.1484% x $10,000 = $10,014.84 if the par value is $10,000. And the coupon rates, chgs and asked yields all are given in % of the par value as well in the figure for this question. The 32nd way was more commonly used in the past. These are just different ways of quoting the bond prices. There are also other ways as well.

The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY).

a.	Suppose that today you buy a bond with an annual coupon rate of 6 percent for $1,150. The bond has 20 years to maturity. What rate of return do you expect to earn on your investment? Assume a par value of $1,000. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b-1.	Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b-2.	What is the HPY on your investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

Solution to the FIRST QUESTION

(a)-Coupon Rate

The Coupon Rate of the Bond = 6.250% (The Coupon Rate corresponding to the Maturity period of 05/15/2030)

(b)-Bid price in dollars

Bid price in dollars = Face Value x Today’s Bid Rate

= $10,000 x 142.5781%

= $14,257.81

(c)- The previous day’s asked price in dollars

The previous day’s asked price in dollars = Face Value x [Asked Price Today – Change in Previous day asked price]

= $10,000 x [142.6406% - 0.5938%]

= $10,000 x 142.0468%

= $14,204.68

PLEASE BE NOTED (More than 1 Question)