Question

--ay mhatioN-Protected Security: 21.Assume that the zero-coupon yield curve at date 0 is as follows: S, 8%, S=8.4%, and S 8.9%. What would we expect the current price of a treasury note with a maturity of 3 periods and a coupon rate of 5% per period to be?

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

A В с D E 1 2 5% Treasury note Coupon rate $1,000.00 3 T-note Par value 4 Treasury note Cash Flow $50.00 Zero-yield to maturity PV of CF Year 6 $46.30 8.00% 1 $50.00 $42.55 7 8.40% $1,050.00 $813.03 8.90% 9 $901.88 Current Price of Tresury note 10 11 12

Cell reference -

TICturCZ А В E 1 0.05 1000 Treasury note Coupon rate T-note Par value 2 4 Zero-yield to maturity Treasury note Cash Flow -$C$3*$C$2 -$C$3*$C$2 -$C$3*$C$2+C3 PV of CF Year -D6/(1+C6 )AB6 -D7/(1+C7)AB7 0.08 0.084 6 7 2 0.089 D8/(1+C8)AB8 8 3 =SUM(E6:E8) Current Price of Tresury note 10 11 12

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.