Question

3. (20 points) You can buy or sell a 3.5% coupon $1,000 par U.S. Treasury Note that matures in 6 years. The first coupon payment pays 6 months from now, and the Note pays coupons semi-annually until maturity. It also pays par on maturity. The Yield to Maturity of the Note right now (treat this as your discount rate) is 3.000%. (a) What are the cash flows associated with this Note

Answer 1

Cash flows associated with the Note are 12 semiannual coupon payments of $17.50 each and the face value of $1,000

Step-by-step explanation:

The cash flows of the note comprise of the semiannual coupon payments for 6 years ,which is 12 semiannual coupon payments, since 2 semiannual coupon payments would be made in each of the 6 years until maturity of the U.S. Treasury Note as well as the face value of the note , which is $1000 payable to the investors in the note at maturity.

semiannual coupon payment=face value*coupon rate*6/12

face value=$1,000

coupon rate=3.5%

semiannual coupon payment=$1000*3.5%*6/12

semiannual coupon payment=$17.50

face value=$1000