Suppose that you own the T 3.50 2/15/2018 trading at 108.1875/108.2031 and you have the accompanying zero coupon spot (BEY) yields.
Period |
Spot (BEY)
|
1 |
.0800% |
2 |
.1850% |
3 |
.3343% |
4 |
.5010% |
5 |
.6167% |
6 |
.8189% |
A. Compute the asked yield (BEY) on the note
B. Compute the fundamental value of the note.
C. Does the current price of the T 3.50 reflect its fundamental value?
D. What actions will cause the note to move back to its fundamental value?