Assume that a $1,000,000 par value, semiannual coupon US Treasury note with four 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: $634,624.76

Value of treasury note is $746,617.36

Explanation:

Value of Treasury Note is actually the present value of all cash flows of the treasury note. Value of Treasury Note is calculated by following formula:

Value of Treasury Note = C x [ (1 - (1 + r) ^-n) / r ] + [ F / (1 + r) ^n ]

Coupon payment = C = $1,000,000 x 3% = $30,000 per year = $30,000 / 2 = $15,000 semiannual

YTM = 11% per year = 11% / 2 = 5.5% semiannual

Number of periods = 4 years x 2 periods each year = 8 periods

Value of Treasury Note = $15,000 x [ (1 - (1 + 5.5%) ^-8) / 5.5% ] + [ $1,000 / (1 + 5.5%) ^8 ]

Value of Treasury Note = $95,018.49 + $651,598.87

Value of Treasury Note = $746,617.36