The three us treasury bonds described below are traded in, Ask an Expert

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The three U.S. Treasury bonds described below are traded in the market and pay annual coupons. Assume that the par amount for each bond is $100.

Bond Maturity (Yr) Coupon Rate (%)

A) Year 1 3.5%

B) Year 2 5.0%

C) Year 3 4.5%

Assume that the 1-year interest rate is 3%, the 2-year interest rate is 4%, and the 3-year interest rate is 5%.

(a) Write out each bond's cash flow for each year.

(b) Find each bond's price.

(c) Suppose the Treasury plans to issue a new 3-year note with a $1,000 face value and annual coupons. What coupon rate would they need to set for the bond to initially trade at a price of $1,000?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92865140

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