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Assume that a $1,000,000 par value, semiannual coupon US Treasury note with three years to maturity has a coupon rate of 3%. The yield to maturity (YTM) of the bond is 11.00%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note:$960,214.55$504,112.64$680,151.97$800,178.79

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Answer: $800,178.79

Explanation:

This is a semi-annual coupon bond so convert rate and period to semi annual rates.

Coupon payment = 3% * 1,000,000 * 1/2 years

= $15,000

YTM = 11%/2 = 5.5%

Number of periods = 3 years * 2 = 6 semi annual periods

Value of Bond = Present value of coupon payments + Present value of par

= 15,000 * ( 1 - ( 1 + 5.5%)⁻⁶) / 5.5%) + 1,000,000 / (1 + 5.5%)⁶

= 74,932.9546296555 + 725,245.8330245964

= $800,178.79

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