Question

A 15-year 3 1/4% Treasury Bond is quoted at 100-12 - 100-16. The bond pays interest on Jan 1st and Jul 1st. A customer sells 5M of the bonds. Approximately how much will the customer receive, disregarding commissions and accrued interest?

Answer 1

The multiple choices are:

$5,006.00

B $5,018.75

C $5,025.00

D $5,028.75

The correct option is B,$5018.75

Step-by-step explanation:

The key to unlock this question is to know that government securities are usually quoted in 1/32 nds ,which means that in calculating the price the number after 100 is is multiplied by 1/32.

1M means 1000,while 5M means 5000

The price of 5M=5000*(100+12*1/32)%

The price of 5M=5000*(100+0.375 )%

The price of 5M=$5018.75

In this case the bid price which is lower is used when selling securities to the dealer