Assume that a $1,000,000 par value, semiannual coupon US Treasury note with four years to maturity has a coupon rate of 4%. The yield to maturity (YTM) of the bond is 7.70%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note: $874,669.10 $551,041.53 $743,468.74 $1,049,602.92

Question

Laylah Boone

Business

29 April, 04:12

Assume that a $1,000,000 par value, semiannual coupon US Treasury note with four years to maturity has a coupon rate of 4%. The yield to maturity (YTM) of the bond is 7.70%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note: $874,669.10 $551,041.53 $743,468.74 $1,049,602.92

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Belen Armstrong · Answer 1

the present value of the future cash flows is the the value of the bond we calculate the present value as follows

Cash flow 4% = 40000 per year for 4 year p. v using annuity

Cash flow = 1000000 at year four present value using compound formula

Present value at yield rate 7.7%

Cash flow Discount Factor Present Value

1000000 0.743253883 743253.8831

40000 3.334365155 133374.6062

876628.4893

Compound = 1000000 / (1+7.7%) ^4

Annuity = 40000 * (1 - (1+7.7%) ^-4) / 7.7%