Find the price (per $100 face value, rounded to 3 decimal places) of a 12% Treasury bond, 145 days before maturity, at a yield of 6.26% p.a. 1

 Suppose another student sees your answer to a., and says “You’re wrong! Your answer is more than $100. The price of a short term financial instrument should be always less than its face value!”
 

Explain to this student why the price of the Treasury bond in a. is greater than its face value of $100. 

 Consider the bond in a., but rather price it 187 days before maturity at a yield of 6.24% p.a. Here, a coupon payment is made on the fifth day and the last day. Draw a cash flow diagram that represents this scenario to accompany your answer.

Answer rating: 100% (QA)

To find the price of a Treasury bond we can use the formula for the present value of cash flows The ... View the full answer