A 10 year 5% treasury bond is issued at a price to yield 5.2% three month later , market rates decline by 100 the most likely price of this bond at issuance and three month later Issuance three months later a Above Par below the par b below the par above the par I choose b but the correct one is a,I have no idea
yah man that question doesn’t look right Discount = Coupon
beingthatguy Wrote: ------------------------------------------------------- > yah man that question doesn’t look right > > Discount = Coupon > But if you calc it out using semi-annual > compounding the PV = 1015.58 which is above the > par this question makes no sense if they do not provide necessary assumptions based on this question, I bet on what I selected
Semiannual compounding, value at issue: N=20,I/Y=5.2/2,PMT=25,FV=1000, cpt PV=984.56, below par Use the Bond sheet of your calculator, you get the issue in % of face value: SDT=12.3190 CPN=5 RDT=12.3100 RV=100 ACT 2/Y YLD=5.2cpt PRI=98.456, that is 98.456% of the face, which is indeed 984.56, below par Use the Bond sheet of your calculator, you get the issue in % of face value if issued as of 03/31/1991, and for a yield of 4.2%(decrease in YTM with 100bp): SDT=03.3191 CPN=5 RDT=12.3100 RV=100 ACT 2/Y YLD=4.2cpt PRI=106.341, that is 106.341% of the face, which is $1063.41, above par
Initially, the bond has a coupon < YTMr, so it’s initially at a discount (below par). Assuming that the rate decline is 100 basis pts (it wasn’t clear), this puts the coupon above the then-current YTM (5.0 vs. 4.2). So at that point, it would be at a premium (above par). Are you sure the question is correctly stated?
Hmm… something strange here. 5% coupon bond yielding 5.2% has to be below par. 3 months later, rates decline by 100bps, so… a 5% coupon bond yielding 4.2% has to be above par. Issued below par / rose to above par.
Found it discussed before, probably an error in the solution selection: http://www.analystforum.com/phorums/read.php?11,740532,740532#msg-740532