Question

You find the following Treasury bond quotes. To calculate the number of years until maturity, assume that it is currently May
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Answer #1

(a)-Asked Price of this Bond

  • The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.
  • The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.
  • Here, the calculation of the Bond Price using financial calculator is as follows

Variables

Financial Calculator Keys

Figures

Par Value/Face Value of the Bond [$1,000]

FV

1,000

Coupon Amount [$1,000 x 6.203% x ½]

PMT

31.015

Market Interest Rate or Yield to maturity on the Bond [4.191% x ½]

1/Y

2.0955

Maturity Period/Time to Maturity

[(May 2016 to May 2036) x 2]

N

40

Bond 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 Price of the Bond (PV) = $1,270.64.

“Hence, the Asked price of this Bond will be $1,270.64”

(b)- Bid price in dollars

Bid price in dollars = Asked Price for the Bond – Change in bid-ask spread in Dollars

= $1,270.64 - [$1,000 x (0.0581 / 100)]

= $1,270.64 – 0.5810

= $1,270.06

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