Bonds often pay a coupon twice a year. For the valuation of bonds that make semi

Question

Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation mode is adjusted accordingly. Assume that a $1,000, 000 par value, semiannual coupon U.S. Treasury note with five years to maturity (YTM) has a coupon rate of 4%. The yield to maturity of the bond is 8.80%. Using this Information and ignoring the other costs involved, calculate the value of the Treasury note: $809,157.58 $970,989.10 $509,769.28 O $687,783.94 Based on your calculations and understanding of semiannual coupon bonds, complete the following statement: Assuming that interest rates remain constan t, the T-note's price is expected to

Explanation / Answer

Ans: Since question is of semi annual therfore rate shall be half and time shall be double Value of Tresury note= 20000(PVAF4.4%, 10years)+ 1000000(PVAF 4.4%, 10th years) 20000*7.9518+1000000*0.6501 $809136 approx Therefore A is the correct answer

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