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-   -   How to find YIELD? (https://www.askmehelpdesk.com/showthread.php?t=400464)

  • Sep 27, 2009, 06:55 PM
    tua84949
    How to find YIELD?
    You have just purchased a zero-coupon 3 year Treasury note with a face amount of $10,000. The price was $9,150.00.

    a. As you walk home, you hear that the Federal Reserve has just purchased a large volume of 3-year Treasury notes, driving down their yield to 2%. The Fed also stated that it would continue to intervene in the market to keep the yield at 2%. What is the difference between the yield of your purchase and the Fed's 2% targeted yield?

    b. What is the amount of your capital gain or loss on the purchase and sale of the 3-year notes if you sell your notes tomorrow?


    .. Does anyone know how to find out the yield of the note that was bought in the beginning?
  • Sep 28, 2009, 07:23 AM
    ArcSine
    With respect to (a), your yield is locked in if you hold to maturity, as it is solely a function of the price you paid and the maturity payoff. Sounds like you're asking how to compute it...



    ... using as your arguments: the number of periods; the Maturity amount; and the original Purchase price.

    For part (b), use a simple discounting formula to find the price of the instrument that would result in a 2% yield to maturity.



    This gives the amount you'd sell for tomorrow, if the market yield fell to 2% as a result of the Fed action. Compare that to your original purchase price to find your gain or loss.

    Cheers!

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