An investor wishes to purchase a US Treaury bond that matures on Sept. 1, 2035, with a semi-annual coupon of 5% paid on Sept.1 and March 1. The yield quoted on the bond is 3.25% compounded semi-annually. If the settlement date is today, May 2, 2016, what is the price of this bond? And what is the accrued interest to the settlement date? Thanks for any help.
US Treasuries are priced either on 360-day, or on 365-day basis. Since you didn't indicate which one should be used, I will go ahead and price the bond on both bases.
1- On a 360-day basis, the price of the bond, per $100, =$124.968. Accrued interest=$0.847 per $100, which is NOT included in the price of $124.968.
2- On a 365-day basis, the price of the bond, per $100=$124.969. Accrued interest=$0.842 per $100, which is NOT included in the price of $124.969.
As you can see, there is very little difference between the two. If you are a student, you should have the TVM formulas in your textbook. If you are an investor, then your broker will be able to confirm these calculations.
