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What is the price of a Treasury STRIPS with a face value of $100 that matures in 5 years

maturity of 9.0 percent? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the “$” sign in your response.)

Answer

Example

Price = $100 / (1 + .035/2)2(10) =

Sheet2

Problem 9-2

A Treasury STRIPS matures in 8 years and has a yield to maturity of 5.4 percent. Assume the par value is $100,000.

a. What is the price of the STRIPS? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the “$” sign in your response.)

Price $

b. What is the quoted price? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

Quoted price

Example

a.

Price = $100,000 / (1 + .054/2)2(8.5) =

b.

Quoted price = $63,577.36 / $1,000 =

Sheet3

Problem 9-3

A Treasury STRIPS is quoted at 67.181 and has 7 years until maturity. What is the yield to maturity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)

YTM %

Example

YTM = 2 × [(100 / 81.265)1/(2 × 8) − 1] = .0261 or 2.61%

Sheet4

roblem 9-4

What is the yield to maturity on a Treasury STRIPS with 6 years to maturity and a quoted price of 81.247?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)

YTM %

Example

YTM = 2 × [(100 / 65.492)1/(2 ×7) − 1] = .0614 or 6.14%

Sheet5

Problem 9-11

A Treasury bill with 136 days to maturity is quoted at 96.012. What is the bank discount yield, the bond equivalent yield, and the effective annual return? (Do not round intermediate calculations. Enter your answers as a percent rounded to 3 decimal places. Omit the “%” sign in your response.)

Discount yield %

Bond equivalent yield %

Effective annual return %

Example

98.921 = 100 × [1 − (82/360) × DY); discount yield = .04737 or 4.737%

bond equivalent yield = [365(.04737)]/[360 − (82)(.04737)] = .04855 or 4.855%

EAR = [1 + .04855/(365/82)]365/82 − 1 = .04947 or 4.947%

Sheet6

Problem 9-12

A Treasury bill purchased in December 2015 has 123 days until maturity and a bank discount yield of 2.38 percent. Assume a $100 face value.

a. What is the price of the bill as a percentage of face value? (Do not round intermediate calculations. Enter your answer as a percent rounded to 3 decimal places. Omit the “%” sign in your response.)

Price %

b. What is the bond equivalent yield? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)

Bond equivalent yield %

Example

1.0593 = [1 + (APR)(90/365)]365/90 ; APR = bond equivalent yield = 5.802%

discount yield = [360(.05802)]/[365 + (90)(.05802)] = 5.642%

Sheet7

Problem 9-13

The treasurer of a large corporation wants to invest $16 million in excess short-term cash in a particular money market investment. The prospectus quotes the instrument at a true yield of 6.64 percent; that is, the EAR for this investment is 6.64 percent. However, the treasurer wants to know the money market yield on this instrument to make it comparable to the T-bills and CDs she has already bought. If the term of the instrument is 80 days, what are the bond equivalent and discount yields on this investment? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)

Bond equivalent yield %

Discount yield %

Example

1.0593 = [1 + (APR)(90/365)]365/90 ; APR = bond equivalent yield = 5.802%

discount yield = [360(.05802)]/[365 + (90)(.05802)] = 5.642%

Sheet8

Consider the following spot interest rates for maturities of one, two, three, and four years.

r1 = 3.7% r2 = 4.2% r3 = 4.9% r4 = 5.7%

What are the following forward rates, where f1, k refers to a forward rate for the period beginning in one year and extending for k years? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)

Example

f1,1 = (1.0492/1.043)1/1 − 1 = 5.50%

f1,2 = (1.0563/1.043)1/2 − 1 = 6.26%

f1,3 = (1.0644/1.043)1/3 − 1 = 7.11%

Sheet9

Problem 9-23

Consider the following spot interest rates for maturities of one, two, three, and four years.

r1 = 3.9% r2 = 4.5% r3 = 5.2% r4 = 6.0%

Assuming a constant real interest rate of 2 percent, what are the approximate expected inflation rates for the next four years? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)

I1 %

I2 %

I3 %

I4 %

EXAMPLE

f2,1 = 1.0563/1.0492 − 1 = 7.01%

f3,1 = 1.0644/1.0563 − 1 = 8.84%

I1 = r1 − 2% = 4.30% − 2% = 2.30%

I2 = f1,1 − 2% = 5.50% − 2% = 3.50%

I3 = f2,1 − 2% = 7.01% − 2% = 5.01%

I4 = f3,1 – 2% = 8.84% – 2% = 6.84%

Sheet10

Problem 9-24

A Treasury bill that settles on May 18, 2012, pays $100,000 on August 21, 2012. Assuming a discount rate of 3.48 percent, what is the price and bond equivalent yield? Use Excel to answer this question. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the “$” & “%” signs in your response.)

The post What is the price of a Treasury STRIPS with a face value of $100 that matures in 5 years appeared first on best homeworkhelp.

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