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Practice 3: Bond market 1. What were the bid price, asked price, and yield to maturity of the 5.000% May 15th. 2037 Treasury bond displayed in Figure below? What was its asked price the previous day? If 30 days have passed since the last coupon payment, what is the sale, or invoice, price of the bond? U.S. Government Bonds and Notes ASK YLD MATURITY COUPON BID ASKED CHG Jun 30 11 Jul 31 11 Jul 31 11 Aug 15 11 Aug 31 11 Aug 31 11 Sep 30 11 Sep 30 11 Oct 31 11 Nov 15 11 Nov 30 11 May 15 37 Feb 15 38 May 15 38 Feb 15 39 May 15 39 Aug 15 39 5.125 1.000 4.875 5.000 1.000 4.625 1.000 4.500 4.625 .750 4.500 5.000 4.375 4.500 3.500 4.250 4.500 107:11 107:11 100:09 100:10-2 0.8303 107:05 107:06 -3 0.8186 107:18 107:19 100:06 100:06 - 0.9008 106:29 106:30 -3 0.8796 100:03 100:03 -2 0.9555 106:28 106:29 -2 0.9365 107:11 107:12 2 0.9739 101:16 101:17 -2 1.0122 107:08 107:09 -3 1.0235 111:00 1105 -21 4.3049 100:24 100:28 -21 4.3208 102:29 103:00 -20 4.3161 86:11 86:14 -18 4.3197 98:26 103:02 103:03 -22 4.3143 -2 0.7792 -3 0.8118 98:29 -20 4.3156 2. A 30-year maturity, 10% coupon bond paying coupons semiannually is callable in 15 years at a call price of $1,100. The bond currently sells at a yield to maturity of 8% (4% per half-year) a. What is the yield to call? b. What is the yield to call if the call price is only $1,050? c. What is the yield to call if the call price is $1,100, but the bond can be called in 10 years instead of 15 years? 3. Suppose that the yield to maturity of the 5% coupon, 25-year maturity bond falls to 7% by the end of the first year and that the investor sells the bond after the first year. If the investor's federal plus state tax rate on interest income is 30% and the combined tax rate on capital gains is 20%, what is the investor's after- tax rate of retum? Practice 3: Bond market 1. What were the bid price, asked price, and yield to maturity of the 5.000% May 15th. 2037 Treasury bond displayed in Figure below? What was its asked price the previous day? If 30 days have passed since the last coupon payment, what is the sale, or invoice, price of the bond? U.S. Government Bonds and Notes ASK YLD MATURITY COUPON BID ASKED CHG Jun 30 11 Jul 31 11 Jul 31 11 Aug 15 11 Aug 31 11 Aug 31 11 Sep 30 11 Sep 30 11 Oct 31 11 Nov 15 11 Nov 30 11 May 15 37 Feb 15 38 May 15 38 Feb 15 39 May 15 39 Aug 15 39 5.125 1.000 4.875 5.000 1.000 4.625 1.000 4.500 4.625 .750 4.500 5.000 4.375 4.500 3.500 4.250 4.500 107:11 107:11 100:09 100:10-2 0.8303 107:05 107:06 -3 0.8186 107:18 107:19 100:06 100:06 - 0.9008 106:29 106:30 -3 0.8796 100:03 100:03 -2 0.9555 106:28 106:29 -2 0.9365 107:11 107:12 2 0.9739 101:16 101:17 -2 1.0122 107:08 107:09 -3 1.0235 111:00 1105 -21 4.3049 100:24 100:28 -21 4.3208 102:29 103:00 -20 4.3161 86:11 86:14 -18 4.3197 98:26 103:02 103:03 -22 4.3143 -2 0.7792 -3 0.8118 98:29 -20 4.3156 2. A 30-year maturity, 10% coupon bond paying coupons semiannually is callable in 15 years at a call price of $1,100. The bond currently sells at a yield to maturity of 8% (4% per half-year) a. What is the yield to call? b. What is the yield to call if the call price is only $1,050? c. What is the yield to call if the call price is $1,100, but the bond can be called in 10 years instead of 15 years? 3. Suppose that the yield to maturity of the 5% coupon, 25-year maturity bond falls to 7% by the end of the first year and that the investor sells the bond after the first year. If the investor's federal plus state tax rate on interest income is 30% and the combined tax rate on capital gains is 20%, what is the investor's after- tax rate of retum