Fixed Income Securities Test 2
(Answered) Complete Solution
Assume you purchased Treasury bond on November 14, with an annual coupon
rate equal to 15%. At settlement you must pay accrued interest equal to $2.51.
Assuming there are 182 days in a coupon period, how many days were in the AI
period?
Coupon of 15% = $15 per $100 of par
Coupon interest per day = = .0412
$2.51 / .0412 = 61 days
Which of the following statements is FALSE?
- all coupon treasury security can be created STRIPs
- Treasury STRIPs were created due to demand for long term zero coupon with no
credit risk
- Treasury strips are uniquely attractive to US investors due to their preferential
tax treatment
False = Treasury strips are uniquely attractive to US investors due to their preferential
tax treatment
Their tax treatment is not preferred it is actually bad because you can be paying out tax
even though you are not receiving cash flow
Price of a bond quoted as:
96-14
96 + 14/32 = 96.4375
Price of a bond quoted as:
96.14
96 + 14/32 = 96.4375
Price of a bond quoted as:
96.14+
95 + 14/32 + 1/64 = 96.453125
Price of a bond quoted as:
96.141
96 + 14/32 + = 96.44140625
Price of a bond quoted as:
96.142
96 + 14/32 + 2/256 = 96.4453125
Assuming the quoted price for a $100,000 par value treasury coupon is 104.037,
the dollar price of this security is closest to?
, 104 + 3/32 + 7/256 = 104.12109
104.12109 * 1,000 = 104,121.09
When comparing US Treasury Bills with Treasury Notes and bonds, it is
customary to express the T-bill at its?
Bond-equivalent yield
Bond Equivalent yield =
Bond Equivalent Yield = Discount / Price * 365 / Days to Maturity
The price of a treasury bill with 180 days to maturity and $1 million face value is
965,000. The bank discount basis yield for this security is closest to?
Bank Discount Yield = (Dollar Discount / Face Value) * (360 / t)
Where Dollar Discount = Face Value - Price
Bank Discount Yield = .035 * 360/180 = .07 or 7%
Formula for the Bank Discount Yield
Bank Discount Yield = Dollar Discount / Face Value * 360 / Days to Maturity
Where Dollar Discount = Face Value - Price
Assume that on Jan 1, you purchased a 10 year treasury inflation protected
security (TIPS) with a 3% semiannual coupon, and a par value of $100,000. Then,
after the first 6 months, the annualized inflation rate was 1.5%, your first coupon
receipt will be closest to?
Inflation adjusted principal = 100,000 * 1.075 = 100,750
Inflation Adjusted Principal * semi annual rate = next coupon payment
semi annual rate = 3% / 2 = 1.5%
100,750 * .015 = 1,511.25
The bond described below is selling for settlement on 16 June 2014
- Annual Coupon = 6%
- Coupon payment frequency = 10 April and 10 October
- Maturity date = 10 October 2016
- Day Count Convention = 30/360
- Annual yield to maturity = 4%
The accrued interest per 100 of par value for Bond G on the settlement date of 16
June 2014 is closest to?
April 10 to June 16th = 66 days
= .01667 interest per day
.01667 * 66 = $1.1 accrued interest per 100 dollars of par
(Answered) Complete Solution
Assume you purchased Treasury bond on November 14, with an annual coupon
rate equal to 15%. At settlement you must pay accrued interest equal to $2.51.
Assuming there are 182 days in a coupon period, how many days were in the AI
period?
Coupon of 15% = $15 per $100 of par
Coupon interest per day = = .0412
$2.51 / .0412 = 61 days
Which of the following statements is FALSE?
- all coupon treasury security can be created STRIPs
- Treasury STRIPs were created due to demand for long term zero coupon with no
credit risk
- Treasury strips are uniquely attractive to US investors due to their preferential
tax treatment
False = Treasury strips are uniquely attractive to US investors due to their preferential
tax treatment
Their tax treatment is not preferred it is actually bad because you can be paying out tax
even though you are not receiving cash flow
Price of a bond quoted as:
96-14
96 + 14/32 = 96.4375
Price of a bond quoted as:
96.14
96 + 14/32 = 96.4375
Price of a bond quoted as:
96.14+
95 + 14/32 + 1/64 = 96.453125
Price of a bond quoted as:
96.141
96 + 14/32 + = 96.44140625
Price of a bond quoted as:
96.142
96 + 14/32 + 2/256 = 96.4453125
Assuming the quoted price for a $100,000 par value treasury coupon is 104.037,
the dollar price of this security is closest to?
, 104 + 3/32 + 7/256 = 104.12109
104.12109 * 1,000 = 104,121.09
When comparing US Treasury Bills with Treasury Notes and bonds, it is
customary to express the T-bill at its?
Bond-equivalent yield
Bond Equivalent yield =
Bond Equivalent Yield = Discount / Price * 365 / Days to Maturity
The price of a treasury bill with 180 days to maturity and $1 million face value is
965,000. The bank discount basis yield for this security is closest to?
Bank Discount Yield = (Dollar Discount / Face Value) * (360 / t)
Where Dollar Discount = Face Value - Price
Bank Discount Yield = .035 * 360/180 = .07 or 7%
Formula for the Bank Discount Yield
Bank Discount Yield = Dollar Discount / Face Value * 360 / Days to Maturity
Where Dollar Discount = Face Value - Price
Assume that on Jan 1, you purchased a 10 year treasury inflation protected
security (TIPS) with a 3% semiannual coupon, and a par value of $100,000. Then,
after the first 6 months, the annualized inflation rate was 1.5%, your first coupon
receipt will be closest to?
Inflation adjusted principal = 100,000 * 1.075 = 100,750
Inflation Adjusted Principal * semi annual rate = next coupon payment
semi annual rate = 3% / 2 = 1.5%
100,750 * .015 = 1,511.25
The bond described below is selling for settlement on 16 June 2014
- Annual Coupon = 6%
- Coupon payment frequency = 10 April and 10 October
- Maturity date = 10 October 2016
- Day Count Convention = 30/360
- Annual yield to maturity = 4%
The accrued interest per 100 of par value for Bond G on the settlement date of 16
June 2014 is closest to?
April 10 to June 16th = 66 days
= .01667 interest per day
.01667 * 66 = $1.1 accrued interest per 100 dollars of par
