Treasury spot rates are as follows in today's market: Maturity (years) 1 2 3 Spot rate 2.1% 2.7% 3.3% One year ago, a 3-year Treasury note ($1,000 face value, 4% coupon rate and pays annual coupon) was issued and today it has two years left to maturity and two cashflows left to pay. Part 1 If this security is fairly priced in today's market, what must be true about the YTM? Check all that apply: 3.3% > YTM > 2.7% YTM > 3.3% Being the complex average of 1-yr and 2-yr Treasury spot rates, YTM is quite close to 2-yr spot rate but quite far from 1-yr spot rate YTM < 2.1% Being the complex average of 1-yr and 2-yr Treasury spot rates, YTM is quite close to 1-yr spot rate but quite far from 2-yr spot rate 2.7% > YTM > 2.1% Part 2 If this security is under-priced but greater than $1,000 in today's market, what can you conclude about the YTM? Check all that apply: YTM < 4% 3.3% > YTM > 2.7% YTM must be greater than that computed in Part 1 2.7% > YTM > 2.1%

Treasury spot rates are as follows in today's market: Maturity (years) 1 2 3 Spot rate 2.1% 2.7% 3.3% One year ago, a 3-year Treasury note ($1,000 face value, 4% coupon rate and pays annual coupon) was issued and today it has two years left to maturity and two cashflows left to pay. Part 1 If this security is fairly priced in today's market, what must be true about the YTM? Check all that apply: 3.3% > YTM > 2.7% YTM > 3.3% Being the complex average of 1-yr and 2-yr Treasury spot rates, YTM is quite close to 2-yr spot rate but quite far from 1-yr spot rate YTM < 2.1% Being the complex average of 1-yr and 2-yr Treasury spot rates, YTM is quite close to 1-yr spot rate but quite far from 2-yr spot rate 2.7% > YTM > 2.1% Part 2 If this security is under-priced but greater than $1,000 in today's market, what can you conclude about the YTM? Check all that apply: YTM < 4% 3.3% > YTM > 2.7% YTM must be greater than that computed in Part 1 2.7% > YTM > 2.1%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 23P

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Maturity (years)	1	2	3
Spot rate	2.1%	2.7%	3.3%

Part 1

If this security is fairly priced in today's market, what must be true about the YTM?

Check all that apply:

3.3% > YTM > 2.7%

YTM > 3.3%

Being the complex average of 1-yr and 2-yr Treasury spot rates, YTM is quite close to 2-yr spot rate but quite far from 1-yr spot rate

YTM < 2.1%

Being the complex average of 1-yr and 2-yr Treasury spot rates, YTM is quite close to 1-yr spot rate but quite far from 2-yr spot rate

2.7% > YTM > 2.1%

Part 2

If this security is under-priced but greater than $1,000 in today's market, what can you conclude about the YTM?

Check all that apply:

YTM < 4%

3.3% > YTM > 2.7%

YTM must be greater than that computed in Part 1

2.7% > YTM > 2.1%

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