You purchase a 10 3/8s 2009 Feb. $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?
A) 8.14%
B) 8.16%
C) 8.22%
D) 8.32%
E) 8.47%

Question

Quizplus · Accepted Answer

The rate of return can be calculated by considering the purchase price, the selling price, and the interest received. The purchase price of the Treasury Note is 103:11, which means 103 and 11/32 percent of the par value, or $1,033.44 per $1,000 of par value. The selling price is 101:13, or 101 and 13/32 percent of the par value, or $1,014.06 per $1,000 of par value. The Treasury Note has a coupon rate of 10 3/8s, or 10.375%, so the interest received in one year on a $10,000 par value would be $1,037.50. The total return is the sum of the interest received plus the difference between the selling price and the purchase price, which is $1,037.50 + ($1,014.06 - $1,033.44) * 10 = $1,037.50 - $193.80 = $843.70. The rate of return is the total return divided by the initial investment, or $843.70 / $10,334.40 = 8.16%.

You Purchase a 10 3/8s 2009 Feb