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Flight-to-safety, is a financial market phenomenon occurring when investors sell what they perceive to be higher-risk investments and purchase safer investments, such as gold and
Flight-to-safety, is a financial market phenomenon occurring when investors sell what they perceive to be higher-risk investments and purchase safer investments, such as gold and US treasury bonds (Wikipedia). When you first heard the outbreak of COVID-19 on Jan 22, 2020, in fear of the spreading out the fatal virus, you decide to purchase 10-year US treasury note. YTM of available 10-year US treasury note was around 1.70% (annualized rate), with coupon rate of 1.12% (annualized rate). Coupon is paid every 6 months. 6 months later the YTM of the same bond drops to 0.64% (right before the first coupon payment). Assuming the maturity date of the bond you invested is Jan 22, 2030, With the information above, please answer the following four questions. Q1: Before doing any calculation, please state if the following statement true or not. At the time of the purchase, the bond is priced at a premium. True False QUESTION 18 Q2: What is the bond price when you invested? (hint: calculate half-year discount rate and coupon payment first. Face value of US 10-year treasury note is $1000.) QUESTION 19 Q3: What is the US 10-year treasury note price right before the first coupon payment (hint: if using calculator, set calculator to "annuity due" mode and compute the bond price. Alterna tively, using "annuity due input on excel)? QUESTION 20 Q4: What is the annualized bond rate of return in percentage term after holding the bond for 6 months (right before the first coupon payment)
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