# In a Treasury bond maturing in May 2040, assume a $1,000 par value. What is the bid-ask spread...

## Question:

In a Treasury bond maturing in May 2040, assume a $1,000 par value.

What is the bid-ask spread in dollars? (Do not round intermediate calculations. Round answer to 3 decimal places (e.g., 32.162).)

## Bid-Ask Spread:

The bid-ask spread for security is the difference in the price at which the dealer sells and buys the given security. The difference is the source of profit for the dealer and is greater for thinly traded securities. The treasuries are extensively traded and hence bod ask spread is usually low.

## Answer and Explanation: 1

*The bid-ask spread in dollars is $0.200*

For the quotes, we refer to the wall street journal with the current quotes. The link used is:

https://www.wsj.com/market-data/bonds/treasuries

Quotes as on 7th January 2020:

MATURITY | COUPON | BID | ASKED | CHG | ASKED YIELD |
---|---|---|---|---|---|

5/15/2040 | 4.375 | 136.1400 | 136.1600 | -0.1720 | 2.151 |

The bid-ask spread is the difference in the bid and ask quote = 136.1600 - 136.1400

=0.0200

Since the quote for treasury are per $100 par, we multiply the difference by 10 to get the dollar bid-ask spread for a face value of $1,000.

The bid-ask spread is hence $0.0200 * 10

=$0.200

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