You purchase a 10 3/8s February $10,000 par Treasury note at 103:11 and hold it for exactly one year at which time you sell it. What is your rate of return if your selling price is 101:13?

Question

Quizplus · Accepted Answer

The purchase price of the Treasury note is:
103 and 11/32 = 103.34375% of $10,000 = $10,334.38

The selling price of the Treasury note is:
101 and 13/32 = 101.40625% of $10,000 = $10,140.63

The interest earned is the difference between the selling price and purchase price:
$10,140.63 - $10,334.38 = -$193.75

Since the interest is negative, the rate of return is calculated as:
(rate of return) = (interest / purchase price) x 100%
(rate of return) = (-$193.75 / $10,334.38) x 100%
(rate of return) = -1.87%

Therefore, the rate of return is -1.87%, meaning the investor lost money on this investment. None of the answer choices are correct, so the best choice is to select None of the above.

You Purchase a 10 3/8s February $10,000 Par Treasury Note