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The ask yield on a 6 percent coupon Treasury bond maturing in eight years is 5.488...

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Finance

The ask yield on a 6 percent coupon Treasury bond maturing ineight years is 5.488 percent. If the face value is $1,000, whatshould be the QUOTED cost of the bond today (use semiannualcompounding)?

A. 103.2795

B. 107.2542

C. 106.8542

D. 108.5511

E. 104.3678

Answer & Explanation Solved by verified expert
4.0 Ratings (676 Votes)

Par value $1,000.00

Coupon Interest rate =

 6%

Semiannual coupon rate

 3%

Interest per coupon

(1000*3%) =

 $30.00
YTM rate 5.488%

Semiannual YTM rate =

 2.744%

No. of years

 8

No. of periods (10 Years * 2)

 16

Calculation of price of bond @ 2.744% YTM

Annual Interest received =

 30.00

Cumulative P.V.F. @ 2.744 % for 16 periods =

(1- ((1/(1.02744)^16)))/0.02744

 12.81050102

Present value of interest received (30 * 12.81050)

 $384.32

Maturity amount received =

 1000

P.V.F. @ 2.744 % for 16 th period =

 0.648479852

(1/(1+0.02744)^16)

Present value of Maturity amount(1000*0.648479)

 $648.48

Price of bond

 $1,032.79

Quoted price of bond = 1032.79/1000 * 100 =

 103.2794883

So, Quoted price of bond is 103.2795%. Answer A.

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Transcribed Image Text

The ask yield on a 6 percent coupon Treasury bond maturing ineight years is 5.488 percent. If the face value is $1,000, whatshould be the QUOTED cost of the bond today (use semiannualcompounding)?A. 103.2795B. 107.2542C. 106.8542D. 108.5511E. 104.3678

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