Homework4

Bond Markets, Analysis and Strategies (6th Edition)

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Homework #4 1) Treasury Bills Issued at discount to par. Par is paid back at maturity. One year or less life. Treasury Notes Issued near par with a coupon. Par is paid back at maturity. Life is greater than one year, but less than or equal to ten. Treasury Bonds Issued near par with a coupon. Par is paid back at maturity. Life is greater than ten years. *side note: None of the treasuries have been callable since 1984. 2) TIPS: a) The real interest rate for a TIPS is the fixed coupon rate that the investor will receive above the inflation rate, which is given by some inflation index such as the Consumer Price Index (CPI). The coupon payment will be based off of the multiplication of the inflation adjusted principal with the real rate; thus, the coupon payment could essentially derived from the (real rate plus the inflation rate) multiplied by the base principal. b) Inflation adjusted principal is a value that is calculated by multiplying the beginning principal of a period by one plus some inflation rate of the same period. This value is then used to calculate the coupon payment for the same period by
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Homework4 - Homework #4 1) Treasury Bills Issued at...

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