1. Assume that the Treasury sold a $100,000, 30 year bond exactly twenty five years ago. That bond carried a coupon rate of 10.75%. Also assume that today a five year Treasury security yields 3.0%. How much would that 25 year old bond sell for today? (Note: for simplicity purposes only, assume annual interest payments on the bond - though Treasury bonds actually pay interest semi-annually - and assume also that the next interest payment date is exactly one year from now.)

2. Assume that you have the opportunity to buy a 30 year, zero coupon, $50,000 bond. You determine that the yield on a comparable bond (comparable in terms of risk, liquidity, etc.) is 4.0%. How much should you pay (maximum) for the bond? Assume an efficient market.

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See the attached file. The formatted and formulas would be missing here.

VALUATION OF A BOND
1. Assume that the Treasury sold a $100,000, 30 year bond exactly twenty five years ago. That bond carried a coupon rate of 10.75%. Also assume that today a five year Treasury security yields 3.0%. How much would that 25 ...

Solution Summary

Shows how to calculate the amount Treasury Bond would sell for today. Also shows how to calculate the value of a Zero coupon bond.

Suppose that you purchase a Treasurybond futures contract at $95 per $100 of face value.
a. What is your obligation when you purchase this futures contract?
b. If an FI purchases this contract, in what kind of hedge is it engaged?
c. Assume that the Treasurybond futures price falls to 94. What is your loss or gain?
d. As

Looking at the Wall Street Journal you observe that the settlement price on a hypothetical 15-year, semiannual payment, 6% coupon bond is 109 9-32. If the bond has a $1,000 par value, what is the implied Treasurybond rate?
5.11%
5.55%
5.91%
6.35%
6.79%

All treasury securities has a yield to maturity of 7% so the yield curve is flat. If the yield to maturity on all Treasuries were to decline to 6%, which of the following bonds would have the largest percentage increase in price and why?
a. 15 year zero coupon Treasurybond
b. 12 year Treasurybond with 10% annual coupon
c.

All treasury securiities has a yield to maturity of 7%-- so the yield curve is flat. If the yield to maturiy on all Treasuries were to decline to 6%, which of the following bonds would have the largest percentage increase in price and why?
A. 15 year zero coupon Treasurybond.
B. 12 year Treasurybond with a 10% annual

The following treasurybond quote appeared in the Financial Times on May 7, 2004:
9.125 May 09 100:03 100:04 ... -2.15
Why would anybody buy the TreasuryBond with a negative yield to maturity?
How is this possible?

Question: A treasurybond that matures in ten years has a yield of 6 percent. A 10 year corporate bond has a yield of 8 percent. Assume that the liquidity premium on the corporate bond is .5 percent. What is the default risk premium on the corporate bond?

The Treasury department is offering to sell me a bond for $613.81. I can not get any money from the bond for 10 years. What interest rate would I earn if i chose to buy the bond at the price they are offering.

Which of the following is most correct?
a. The yield on a 2 year corporate bond will always exceed the yield on a 2 year treasurybond.
b. The yield on a 3 year corporate bond will always exceed the yield on a 2 year corporate bond.
c. The yield on a 3 year treasurybond will always exceed the year on a 2 year treasurybond

You are considering an investment in U.S. Treasurybond but are not sure what rate of interest it should pay. Assume that the real risk-free rate of interest is 1.5%; inflation is expected to be 4.5%; that maturity risk premium is 5.0%; and the default risk premium for AAA rate corporate bonds is 4.0%. What rate of interest shou