A Treasury note has 3.5 years left to maturity,a yield to maturity of 4.25 percent,and a coupon rate of 4.40 percent.What is the price of the bond?

Question

Quizplus · Accepted Answer

Using the bond pricing formula, we can find the price of the bond:
Price = (Coupon payment / (1 + YTM)^1) + (Coupon payment / (1 + YTM)^2) + ... + (Coupon payment + Face value / (1 + YTM)^n)
where:
Coupon payment = ($44.00 coupon rate x $1,000 face value) / 2 = $22.00
YTM = 4.25%
n = 7 (since there are 3.5 years left to maturity, and coupon payments are made semi-annually, there are 7 coupon periods left)
Plugging in the values:
Price = ($22.00 / 1.02125^1) + ($22.00 / 1.02125^2) + ... + ($22.00 + $1,000 / 1.02125^7)
Price = $1,004.83
Therefore, the best choice is A, $1,004.83.

A Treasury Note Has 3