Suppose the U.S. Treasury issued 2 year, 2.5% bonds on October 15, 2019. The face value is
Question:
Suppose the U.S. Treasury issued 2 year, 2.5% bonds on October 15, 2019. The face value is paid at maturity
(10/15/2021).
a) List the cash flows for this bond for $100 million of face value starting from the day of issue (ignore the
purchase price for this question).
b) Suppose it is now April 15, 2020 and you want to buy this bond for investment. What is the maximum
price that you would be willing to pay, if you want to achieve a yield to maturity of 3.1% (assume the
settlement date is 4/15/2020). Would you buy it if the quoted price is 98-16?
c) If someone purchased these bonds on April 14, 2021 (settlement date: 4/15/2021) at $99-02, what would
the yield to maturity be?
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill