[tua84949]

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?

[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!