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Turn back to figure and look at the Treasury bond maturing in February 2039. a. How much

Question:

Turn back to figure and look at the Treasury bond maturing in February 2039.


Turn back to figure and look at the Treasury bond


a. How much would you have to pay to purchase one of these notes?
b. What is its coupon rate?
c. What is the current yield of thenote?

Transcribed Image Text:

U.S. Government Bonds and Notes ASK MATURITY COUPON BID ASKED CHG YLD Jun 30 5.125 107:1 07: 2 0.7792 Ju 3 000 100:09 100:10 2 0.8303 Jul 3 4875 07:05 107:06 3 0.8186 Aug 5 5.000 107:18 107:19 3 0.8118 Aug 3 1000 100:06 100:06 0.9008 Aug 31 4625 106:29 106:30 3 0.8796 Sep 30 000100:03 100:03 2 0.9555 Sep 30 400 106:28 106:29 2 0.9365 0ct 3 4.625 07: 107:12 2 0.9739 Nov 15 750 0:16 101:17 .0122 Nov 30 4 07:08 107:09 3 .0235 May 15 37 5.000 111:00 11:05 -21 4.3049 Feb 15 38 4375 100:24 100:28 2 4.3208 May 15 38 4.500 102:29 103:00 -20 4.3161 Feb 15 39 3.500 86 86:14 18 4.3197 May 15 394.25098:26 98:29 -20 4.3156 Aug 15 39 4500 103:02 103:03 22 4.3143

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a A person would have to pay the purchase price of 8614 86437...View the full answer


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Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.

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