Question
1. Assume that two U.S. Treasury securities were purchased at par ($1000) on your selected date five years ago: 1) a 10-year T-note and 2)
1. Assume that two U.S. Treasury securities were purchased at par ($1000) on your selected date five years ago: 1) a 10-year T-note and 2) a 20-year T-bond. Also assume that for each of the two securities the reported nominal rate that you found above was the coupon rate at issuance.
Assuming semi-annual coupon payments, calculate the value of each bond today after 5 years based on the current 5-year Treasury constant maturity nominal rate for the original 10-year note and a current 15-year rate (assume it is the average of the current Treasury constant maturity nominal 10- and 20-year rates) for the original 20-year bond at http://www.federalreserve.gov/releases/h15/data.htm.
Complete the following tables (see example below):
10-Year Bond Purchased for $1000 5 Years Ago
Original Value | $1000 |
Coupon Rate (From table you completed above at the chosen date from 5 years ago, the original 10-year Nominal T-bond Rate divided by 2 for semi-annual payments) |
|
Current 5-Year Yield to Maturity (The most recent 5-year Nominal T-note Rate reported at the Fed site divided by 2 for semi-annual payments) |
|
Number of Semi-Annual Periods Remaining | 10 |
Current Value* |
|
Gain or Loss on the Bond over the 5 years |
|
20-Year Bond Purchased for $1000 5 Years Ago
Original Value | $1000 |
Coupon Rate (From table you completed above at the chosen date from 5 years ago, the original 20-year Nominal T-bond Rate divided by 2 for semi-annual payments) |
|
Current 15-Year Yield to Maturity (Take the average of the most recent 10- and 20-year Nominal T-bond Rates reported at the Fed site, and then divide this average rate by 2 for semi-annual payments) |
|
Number of Semi-Annual Periods Remaining | 30 |
Current Value* |
|
Gain or Loss on the Bond over the 5 years |
|
b) Did you gain or lose more on one bond relative to the other?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started