Answered

The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104.25 and a bid price of 104.125.
As a seller of the bond, what is the dollar price you expect to receive?

a) $1,048.00 b) $1,041.75 c) $1,041.25 d) $1,042.50 e) $1,040.40

Answer :

letmeanswer

As a seller we would receive $1,041.25

Solution:

You may receive the bid price of the dealer, [tex]104.125\%[/tex] of $1,000, or $1,041.25

Prices of treasury bonds are expressed as par value amounts.  

The quote price of 104:25 means that the bond is priced at [tex](104 + \frac{25}{100})\%= 104.25\%[/tex] of the par value.  

Therefore, if the debt is $1,000, the dollar values to be charged by the borrower should be [tex]1,000\times104.25\% = \$1,041.25[/tex]

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