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Hello folks! I need some help.

I have a $100,000 US treasury savings bond which matures in 2025(consider it 7 years exactly). It pays interest semi-annually as follows:

Year 1 @ 1.50%(half of it every 6 months)

Year 2 @ 1.75%

Year 3 @ 2.25%

Year 4, 5, 6 @ 3%

Year 7 @ 4%. If I sold in the Open Market @ a yield of 3.5% semi-annually, what price should I get for it? Any help would be appreciated. I thank you.

 

 

 Feb 10, 2018
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You could find out the price by summing up the PV of all the coupons plus the face value of the bond at maturity at the given yield of 3.5% compounded semi-annually. This is a cash flow problem and you would use the following formula:

PV = FV x [1 + R]^-N

PV =750 x [ + 0.035/2]^-1 + 750 x [1 + 0.035/2]^-2 + 875 x [1 + 0.035/2]^-3 +........and so on to + 100,000 x [1 + 0.035/2]^-14......and you should get = $94,391.03.

I have NOT included any accrued interest that may be due, because I used the term of 7 years exactly, or 14 semi-annual periods.

 Feb 11, 2018
edited by Guest  Feb 11, 2018

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