Suppose a U.S. Treasury bond will pay $1,000 twenty years from now, with no interest payments in between. If the going interest rate on 20-year treasury bonds is 3.31%, how much is the bond worth today?

Suppose a U.S. Treasury bond will pay $1,000 twenty years from now, with no interest payments in between. If the going interest rate on 20-year treasury bonds is 3.31%, how much is the bond worth today?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 9P

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

Suppose a U.S. Treasury bond will pay $1,000 twenty years from now, with no interest payments in between. If the going
interest rate on 20-year treasury bonds is 3.31%, how much is the bond worth today?
Your answer should be between 440.00 and 720.00, rounded to 2 decimal places, with no special characters.

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US Treasury bond:

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