Question

You are eyeing an investment in Treasury Notes for a full lot (i.e. PAR=$100,000), and find a note with a maturity of 5 years. This particular Treasury has a YTM of 4.09%, and a stated rate of interest of 0.09% with a maturity of 5 years. The market price of this treasury is closest to? a. $82,077.05 b. $82,480.32 c. $82,037.82 d. $82,237.64

Answer 1

Coupon = 0.0009 * 100,000 = 90

Market price = Coupon * [1 - 1/ (1 + r)ⁿ] / r + FV / (1 + r)ⁿ

Market price = 90 * [1 - 1/ (1 + 0.0409)⁵] / 0.0409 + 100,000 / (1 + 0.0409)⁵

Market price = 90 * [1 - 0.81838] / 0.0409 + 81,837.99058

Market price = 90 * 4.440587 + 81,837.99058

Market price = $82,237.64