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Assume that a $1,000,000 par value, semiannual coupon US Treasury note with four years to maturity has a coupon rate of 3%. The yield to maturity (YTM) of the bond is 11.00%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note: $746,617.36 $634,624.76 $470,368.94 $895,940.83

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facundobuzzetti

Answer:

Asset Price= $746,617.36

Explanation:

Giving the following information:

Face value= $1,000,000

Coupon= 0.03/2= 0.015*1,000,000= $15,000

Number of periods= 2*4= 8 semesters

YTM= 0.11/2= 0.055

To calculate the price of the asset, we need to use the following formula:

Asset Price​= cupon*{[1 - (1+i)^-n] / i} + [face value/(1+i)^n]

Asset Price= 15,000*{[1 - (1.055^-8) / 0.055} + [1,000,000 / (1.055^8)]

Asset Price= 95,018.49 + 651,598.87

Asset Price= $746,617.36

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