(Accrued interest, YTM) On 20 February 2015, you are offered a U.S.

Treasury note. Here are the terms of the note:

• The note has face value of $100,000 and a 6.5% coupon rate. The note matures on 15 October 2020.

• The semi-annual interest on the note (i.e., 6 5 100 000 2

3 250 . %* , = $ , ) is paid on 15 April and 15 October of each year. The last interest payment was 15 October 2014, and the next interest payment is on 15 April 2015.

• Other interest payments are on 15 October 2015, 15 April 2016, . . ., 15 October 2020. On this last date, the bond’s principal of $100,000 is also returned.

• On 20 February 2015, the bond was priced at $109,477.71. This price was computed as follows:

a. Confirm the calculation of the accrued interest.

b. Use XIRR calculate the annualized yield to maturity (IRR).

Transcribed Image Text:

$107,152.00 $2,285.71 = $109,477.71 In the jargon of bond markets, this is called the "bond price" Accrued Interest In the jargon of bond markets, this is called the "invoice price"