As an investor, I wish to verify the price of a U.S. Treasury bond, which I'm thinking of buying:
The settlement date is Jan. 6, 2017, maturity date is Sept.15, 2027, the coupon is 4% paid semi-annually. I wish to buy it to yield 2.5% compounded semi- annually. What is the price that I should be paying to buy this bond? Any help from you folks would be greatly appreciated. I thank you very much.
Since you are an investor and NOT a student, I'm not going to explain to you how the bond price is calculated, since there are at least 4 different formulas used to arrive at the price of this bond. Part of the reason, is that the settlement date of Jan. 6, 2017 does not coincide with the coupon payments dates of March 15 and Sept.15 of every year. Unfortunately, that fact complicates things.
I will be using actual number of days between dates, instead of some practices of using 360 and 30 days.
So, based on all the above, the price of your bond should be:
$113.990 + $1.249 accrued interest =$115.239. Accrued interest is from Jan. 6, 2017 to the next coupon date of Mar. 15, 2017.
The quote from your broker should agree with this calculation. Good luck to you.
