Final answer:
To calculate the cash price of a US Treasury bond, determine the present value of the bond's face value and coupon payments using the appropriate discount rate.
Step-by-step explanation:
To calculate the cash price of a US Treasury bond, we need to determine its present value. The cash price is the present value of the bond's face value plus the present value of its coupon payments.
For example, if the face value of the bond is $1,000 and it has a coupon of 5%, the annual coupon payment would be $1,000 * 5% = $50. Since the bond will expire in 9 months, the total coupon payment would be $50 * 9/12 = $37.50.
The cash price of the bond is then calculated by discounting the face value and the coupon payment at the appropriate discount rate. The discount rate reflects the current interest rate in the market. If we assume a discount rate of 8%, we can calculate the present value of the face value and coupon payment using the present value formula.