You purchase a 11 3/8s 2009Feb. $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 100:13?

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The rate of return can be calculated by considering the initial purchase price, the selling price, and the interest received. The initial purchase price of the Treasury Note is 103:11, which means 103 and 11/32 percent of the $10,000 par value, or $10,334.38. The selling price is 100:13, which means 100 and 13/32 percent of the $10,000 par value, or $10,040.63. The Treasury Note has a coupon rate of 11 3/8s, or 11.375%, so the interest received in one year is $10,000 * 11.375% = $1,137.50. The total return is the sum of the interest received and the difference between the selling and purchase prices, which is $1,137.50 + ($10,040.63 - $10,334.38) = $843.75. The rate of return is the total return divided by the initial purchase price, or $843.75 / $10,334.38 = 8.16%.

You Purchase a 11 3/8s 2009Feb