Question: Using the information provided in the table below, please determine the price at which the U.S. Treasury should issue a five year bond with an
Using the information provided in the table below, please determine the price at which the U.S. Treasury should issue a five year bond with an annual coupon rate of 10% and a face value of $1,000. The U.S. Treasury's goal is to issue the bond at a price that will prevent arbitrage opportunities.
| Term Structure of Interest Rates | |
| Time to Maturity | Yield to Maturity |
| 6 months | 0.25% |
| 1.0 year | 0.40% |
| 1.5 years | 0.75% |
| 2.0 years | 1.00% |
| 2.5 years | 1.50% |
| 3.0 years | 2.00% |
| 3.5 years | 2.75% |
| 4.0 years | 3.00% |
| 4.5 years | 3.25% |
| 5.0 years | 3.75% |
| 5.5 years | 4.00% |
| 6.0 years | 5.00% |
The U.S. Treasury should issue the five year bond at a price of: ___
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
