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11 January, 04:50

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?

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  1. 11 January, 04:53
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    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

    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
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