Project 2

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  • Topic: Bond, Yield, August 15
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FIN 327
Spring 2012

Project 2

U.S. Treasury Quotes
Due: Feb 13, 2012

1. Go to the Wall Street Journal webpage
http://online.wsj.com/mdc/public/page/2_3020-treasury.html?mod=topnav_2_3000 and find out the ask/bid price quotes and asked yields for treasury bills (1) maturing on 2009/09/24, traded on 2008/09/24

Bid = 1.845
Ask = 1.835
Asked yield = 1.887
(2) maturing on 2010/09/23, traded on 2009/09/24
Bid = 0.385
Ask = 0.378
Asked yield = 0.384
(3) maturing on 2011/09/22, traded on 2010/09/24
Bid = .250
Ask = .245
Asked yield = .249

2. Calculate the ask prices for the above three T-bills using bank discount method. (1) Ask = 10000*(1-.01835*365/360)= $9813.951
Bid = 10000*(1-.01845*365/360)= $9812.9375
(2) Ask = 10,000*(1-.00378*365/360)= $9961.675
Bid = 10,000*(1-.00385*365/360)= $9960.965
(3) Ask=10,000*(1-.00245*365/360) = $9975.1597
Bid=10,000*(1-.00250*365/360) = $9974.652

3. Calculate the three annualized bond equivalent yields based on the ask prices calculated above.
(1) 10000/9813.951-1*365/365 = .01895 or 1.895%
(2) 10000/9961.625-1*365/365= .0038522 or .385%
(3) 10000/9975.157-1*365/365= .00249 or .249%

4. What trend can you observe from the data? List reasons that could explain the trend.
Based on recent trends the ask yields have declined as the bid and ask price have decreased over the last 4 years. Evidence of this can be seen in the drop in yields from 2008 were yields were awarding a 1.8% to .385% during 2010 and moving even lower to a .249% yield in 2011. Given this occurrence one possible explanation for this could be related to the Federal Reserve cutting interest rates to promote domestic consumption. Another reasoning for this could also be correlated with a overall pessimistic attitude in the market leading to more investment in Treasury bills than commercial investments.

5. Please find out the ask/bid price quotes for the T-bond maturing on 2020 Aug 15, with coupon rate of 8.75%...
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