The Ask Yield on a 6% Coupon Treasury Bond Maturing

question 34

Multiple Choice

The ask yield on a 6% coupon Treasury bond maturing in 8 years is 5.488%. If the face value is $1000, what should be the QUOTED cost of the bond today (use semiannual compounding) ?

• A) 103:6
• B) 103:7
• C) 103:8
• D) 103:9
• E) 103:10 $60 x PVIFA (0.05488/2, 16) + $1,000 x PVIF (0.05488/2,16) = $1,032.79488;
• To convert to fraction quote do the following: Round down ($1,032.79488/10) +
• Round {($1,032.79488/10) - Round down ($1,032.79488/10)] x 32} = 103 9/32

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Definitions:

Expected Rate

The anticipated return on an investment over a specific period, often based on historical data and analysis of market conditions.

Constant-Growth Rate

A growth rate applied continuously and at a constant percentage, often used in the dividend discount model to value stocks.

Dividends

Profits given by a corporation to its shareholders as a distribution.

ROE

Return on Equity, a profitability ratio that measures the amount of net income returned as a percentage of shareholders' equity.