Consider a $1000 face value 3-year treasury with 2.5% annual coupon and a yield of 1.3%. Suppose
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Question:
Consider a $1000 face value 3-year treasury with 2.5% annual coupon and a yield of 1.3%.
Suppose that after one year and after receiving one coupon payment, you decide to sell your treasury note. Consider the following two scenarios:
Scenario #1: interest rates have fallen to 1%.
Scenario #2: interest rates have risen to 2%.
a) Calculate the price that you can sell your treasury note for under scenario #1 and the associated rate of returnwhen you sell your treasury note given Scenario #1.
- Price = $
- Rate of return = %
b) Calculate the price that you can sell your treasury note for under scenario #2 and the associated rate of returnwhen you sell your treasury note given Scenario #2.
- Price = $
- Rate of return = %
Related Book For
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
Posted Date: