Answer:
Value of the Treasury note is $800,178.78
Explanation:
The price of bond can be calculated by discounting all the future cash flows associated with that bond
We will use the following formula to calculate the value of the Treasury note.
Value of Treasury note = C x ( 1 - ( 1 + r )^-n / r ) + ( F / ( 1 + r )^n )
Where
From the given statement in the question, it is concluded that the coupon payment is made twice a year.
F = Face Value = $1,000
,000
C = Coupon Payment = $1,000,000 x 3% x 6/12 = $15,000
n = number of periods = 3 years x 12 / 6 = 6 peiods
r = Yield to maturity = 11% x 6/12 = 5.5%
Placing values in the formula
Value of Treasury note = $15,000 x ( 1 - ( 1 + 5.5% )^-6 / 5.5% ) + ( $1,000 / ( 1 + 5.5% )^6 )
Value of Treasury note = $74,932.95 + $725,245.83
Value of Treasury note = $800,178.78
