3 What is the estimated yield on Treasury securities? Yield on Treasury bond = Last yield - Estimated spread = 9.797 - 6.00 = 3.797

4 What is the current yield for this bond? Current Yield = annual coupon pymt/current market price = 77.50/925 = 8.38%

5 What is the yield to maturity on this bond? 9.797 is the YTM

Rate Maturity Bid Asked CHG ASK YLD 2.875 Nov13n 99:02:00 99:03:00 -2 3.55 6 What annual dollar coupon amount will investors receive if face value of the Treasure note is $1,000? There is no coupon, they pay par at maturity. When the bill matures, you would be paid its face value, $1,000. The rate 2.875 percent obligation bond is due on Novemeber 2013. 7 What price would you pay in dollars to purchase this Treasure note? Asked = 99:03 means 99 3/32 = 99.09375 Bid = 99:02 means 99 2/32 = 99.0625 1000 X 99.09375 = $990.94 Base on the asked price Maturity DAYS TO MAT Bid Asked CHG ASK YLD Aug17 XXXX 41 2.68 2.67 0.01 2.72

8 What price would you pay in dollars to purchase this Treasure bill? Ask price = 2.67 Discount Yield = ((1000 - Pur. Price)/1000) X (360/41days) % discount = 0.0267 (41/360) = 0.003040833 0.003040833 X 1000 = 3.040833333 1000 - 3.0408333= $996.9592 this price you will pay in dollars to buy the T-bill Par value $1,000 Issued on July 15, 2008 Maturity on July 15, 2013 Coupon – 2.5% Original CPI Value for 07/15/08 is 195.00 CPI Value for 1/15/09 is 198.00 (The CPI Index Value is for the period three months prior to the date.) CPI Value for 7/15/09 is 199.50 (The CPI Index Value is for the period three months prior to the date.) 9 Calculate accrued principal for 07/15/09. Rate inflation=0.018 1000+18 = 1018 Principal is adjusted every six months

10 Calculate semiannual interest payment for 07/15/09. The semmiannual interet payment is 2.5%/2 = 1.25% or 0.0125. Interest Pymts = original coupon x the adjusted principal = 0.0125 X 1080 = $13.50 11 Consider a 15%, 20 year bond that pays interest annually, and its current price is $850. What is the promised yield to maturity? N = 20 I=? PV= -850 PMT=150 FV=1000 I=17.77% 17.77% Promised YTM= (Interest year + Principal) / (Bond Value) - 1 = (150+1000)/(850) -1 = 1.352941176 - 1 = 35.29% 12 Suppose you have a 15%, 25 year bond traded at $975. If it is callable in 5 years at $1050, what is the bond's yield to call? Interest is paid annually. PMT=15% coupon X callable 5 years = 75 or (150/2) (C/2)/(1+i/2)^t + (P/(1+i/2)^2nc N = 25 yrs - 5 yrs callable = 20 yrs PV= -975 FV=1050 7.86% 15.73% 16.49%

13 Consider a zero coupon bond that has a current price of $436.19 and matures in 10 years. What is its yield to maturity? YTM = 2 x [(MV/P)^1/2n -1] YTM = (1000/436.19)^1/20 -1 = (1000/436.19)^0.05 - 1 = 1.042356346 - 1 = 4.24% = 8.47% Assume that you purchase a 10-year $1,000 par value…