Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please answer questions 2&3 given the information. Flight-to-safety, is a financial market phenomenon occurring when investors sell what they perceive to be higher-risk investments and

Please answer questions 2&3 given the information.
image text in transcribed
image text in transcribed
image text in transcribed
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 potential harm to the economy, 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. 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.) 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. Alternatively, using "annuity due" input on excel)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions