Why the note is selling for price different from its face

Assignment Help Finance Basics
Reference no: EM132646719

1. The Treasury offers a $10,000 face value 10-year government note with an annual coupon rate of 1.00% (paid semi-annually) to the market.

a. Determine the market price of this note if its yield to maturity is 0.75% APR.

b. Explain why the note is selling for a price different from its face value.

c. Suppose one year later (immediately after the second coupon payment) the market yield on this security is 1.55% (APR). At what price is the note selling for in the market now? (Note: it is now a 9-year note)

d. Calculate the capital gain/loss (% change in price - ignore coupons) between year 0 and year 1 for an individual that purchased the note at its issuance.

e. If the note was stripped of its coupon payments so that its only cash flow was the face value payment at maturity, determine the value of this (zero coupon) note at issuance if the market yield for a single 10-year ahead cash flow is 0.875% (APR).

Reference no: EM132646719

Questions Cloud

Construct a one-year binomial tree for project : Consider the data given in the previous question. We will assume that Technology A has a salvage value of $7 million, rather than zero
What is information security governance : What is Information Security Governance? What documentation is associated with Security Governance?
Find the expected rate of return on the market portfolio : Consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an aggressive stock A, and a defensive
Compute Indigo recognized gain or loss : Compute Indigo's recognized gain or loss if it sells Property B to an unrelated party, then distributes the sale proceeds in redemption of Linda's shares
Why the note is selling for price different from its face : 1. The Treasury offers a $10,000 face value 10-year government note with an annual coupon rate of 1.00% (paid semi-annually) to the market.
Describe the target market in terms of demographics : Access the website, Facebook, and Twitter pages for Motel 6. What are your thoughts about the information provided and the design of each site?
Compute Rosalie recognized loss on the redemption : Salmon distributes $80,000 to Rosalie in exchange for one-half of her shares, which have a basis of $100,000. Compute Rosalie's recognized loss
Significant impact on businesses and industries : We have viewed how Blockchain has made a significant impact on businesses and industries.
Construct a one-year binomial tree for project : Consider the data given in the previous question. We will assume that Technology A has a salvage value of $7 million, rather than zero.

Reviews

Write a Review

Finance Basics Questions & Answers

  Determine the breakeven point

What is the name of this strategy? In which market do you use this strategy? Is it more a hedging strategy or speculation?

  What is the breakeven point of operations in units

The price of the pump is $250 and the variable cost ratio is 50% of the price. Jason calculated that the fixed costs will be about $400,000.

  In 2010 kelly who earns salary of 200000 invests 40000 for

in 2010 kelly who earns a salary of 200000 invests 40000 for a 20 interest in a partnership not subject to the passive

  What interest rate is the bank required by law

Magnus Credit Corp. wants to earn an effective annual return on its consumer loans of 17.5 percent per year. The bank uses daily compounding on its loans.

  How large will this balloon payment have to be for you

How large will this balloon payment have to be for you to keep your monthly payments at $1,250?

  Discuss the free cash flow model

Discuss the free cash flow model, the adjusted present value model, and the residual income model. Find a journal or news article for each model and explain how the model was applied to each situation.

  Payoffs of the portfolio and its constituent elements

Explain with the aid of a graph and by writing down the payoffs of the portfolio and its constituent elements.

  Americans with disabilities act

Do you think that enough has been done by the government today to ensure a level playing field in terms of race, color, and ethnic origin?

  Should the company take this special order

If a computer manufacturer offers to buy 200,000 units of Blue-Ray drive for $2 million on a one-time special order. Assume that ABC  Electronics has enough manufacturing capacity for the order and there will be no selling and administrative cost ..

  What is a deferred tax liability

Is it possible for a company to show positive cash flows but be in grave trouble? Q: How is it possible for a company to show positive net income.

  How the current processes used by rating agencies

From the first e-Activity, discuss how the current processes used by rating agencies could be improved. Provide specific examples to support your response.

  Assume your marketing people have a great plan to boost the

assume your marketing people have a great plan to boost the unit sales. unit sales rise to 500000 but the plan requires

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd