Consider the following three bond quotes:
a Treasury bond quoted at 106:18, a corporate bond quoted at 96.85, and a municipal bond quoted at 101.90.
If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what is the price of these three bonds in dollars?
Bond prices are often quoted in terms of a percentage of the face value of the bond. For example, a corporate bond quoted with 96 means that the bond is trading at 96% of the face value. A special case is the Treasury bond, for which the number after the colons in the quote represents 32nds.
Answer and Explanation:
A treasury bond quoted at 106:18 implies that the bond is trading at (106 + (18/32)) / 100 = 106.56% of the face value. Given a face value of $1000,...
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from Finance 301: Corporate FinanceChapter 7 / Lesson 6