Question

Assume that a $1,000,000 par value, semiannual coupon US Treasury note with five years to maturity has a coupon rate of 6%. The yield to maturity (YTM) of the bond is 11.00%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note:

a.) $841,635.85b.) $715,390.47c.) $530,230.59d.) $1,009,963.02Based on your calculations and understanding of semiannual coupon bonds, complete the following statement:When valuing a semiannual coupon bond, the time period variable (N) used to calculate the price of a bond reflects the number of (Options are: a.) 12-month, b.) 4-month, c.) annual, d.) 6-month) periods remaining in the bonds life.

Answer 1

Answer: the price value of the treasury note

= $815,205.15

✓ 6 month period

When valuing a semi-annual coupon bond, the time period n used to calculate the price of bond reflects the number of "6month" periods remaining in bond life.

Step-by-step explanation:

Using the price of bond formula below:

PV = [C × 1 - (1 + r)^-n /r] + FV/(1+r)^n

C= coupon rate = 6% of par value

6% × 1,000,000 = $60,000

FV = face value = $1,000,000

YTM / r = 11%= 0.11

n = number of years to maturity= 5

PV= 60,000 × 1 - (1+0.11)^-5 / 0.11 + 1,000,000 /(1+0.11)^5

PV = 60,000 × 1 - (1.11)^-5 / 0.11 + 1,000,000 / (1.11)^5

=60,000 × (1 - 0.593451328)/0.11 + 1,000,000 / 1.68505816

= 60,000 × (0.406548672) / 0.11 + 593,451.326

= (60,000 × 3.69589702) + 593,451.326

PV =$(221,753.821 + 593,451.326)

PV = $815,205.147 as the price value of the treasury.

✓ semiannual coupon bond means two coupon rate payments made in a year.

We have two "6months" in a year.

This means that the first interest rate amount is paid in the first 6 months while the other interest rate payment is made in the other 6months.

Answer 2

First question a.) $841,635.85

Second question d.) 6 - month

Step-by-step explanation:

FV = 1,000,000

PMT = 30,000

rate = 5.5%

N = 8

use PV function in business calculator

The Excel PV function is a financial function that returns the present value of an investment. You can use the PV function to get the value in today's dollars of a series of future payments, assuming periodic, constant payments and a constant interest rate. Get the present value of an investment. present value.