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Consider the prices of the following three Treasury issues as of February 24, 2012: 7.050 May 17...

Question:

Consider the prices of the following three Treasury issues as of February 24, 2012:

7.050 May 17 110.31250 110.37500 -12 5.39
8.030May 17 107.43750 107.50000 -4 5.35
11.780May 17 145.93750 146.12500 -14 5.43

The bond in the middle is callable in February 2013.

What is the implied value of the call feature?

Treasury Issues:

The dissemination of debt securities by the government in the form of bonds, notes, bills, and other instruments is referred to as Treasury issues. Since the government issues these securities, both the associated risk and returns will be minimal.

Answer and Explanation: 1

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Let x be the weight of money invested in the first bond.

So, 1-x will be the weight of investment in the third bond.

The x value is computed from...

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Government Securities: Definition, Types & Examples

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Chapter 24 / Lesson 12
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Find out exactly what are government securities and learn about the government securities definition. Discover the purpose of government-backed securities and see how they are utilized in the financial world through their different types and examples.


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