A Treasury note is trading at a price of $487.19, has a face value of $500 and has 240 days until it matures.  What is the current yield of the security?

Question 2Answer

a.
3%

b.
4%

c.
5%

d.
6%

To determine the **current yield** of the Treasury note, we can use the following formula for the yield of a discount security:

\[
\text{Yield} = \frac{\text{Face Value} - \text{Price}}{\text{Price}} \times \frac{360}{\text{Days to Maturity}}
\]

Where:
- Face Value = $500
- Price = $487.19
- Days to Maturity = 240 days

### Step-by-step Calculation:

\[
\text{Yield} = \frac{500 - 487.19}{487.19} \times \frac{360}{240}
\]

First, calculate the difference between the face value and the price:

\[
500 - 487.19 = 12.81
\]

Now, divide the difference by the price:

\[
\frac{12.81}{487.19} \approx 0.0263
\]

Next, multiply by $\frac{360}{240}$:

\[
0.0263 \times 1.5 = 0.03945
\]

Finally, convert this decimal to a percentage:

\[
0.03945 \times 100 = 3.945\%
\]

So, the **current yield** is approximately **3.95%**, which rounds to **4%**.

### Answer: 
**b. 4%**

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Do you want more details on this process or have any questions?

Here are 5 related questions to expand on this:

1. How does the current yield differ from the yield to maturity (YTM)?
2. What is the significance of the 360-day convention in bond calculations?
3. How would the current yield change if the bond price increased?
4. What is the difference between Treasury notes and Treasury bills?
5. How does the current yield compare to the coupon rate of a bond?

**Tip:** In financial calculations, the "360-day year" convention is often used instead of 365 days for simplicity when calculating yields on short-term securities.

A Treasury note is trading at a price of $487.19, has a face value of $500 and has 240 days until it matures. What is the current yield of the security?

Learn how to calculate the current yield of a Treasury note priced at $487.19 with a face value of $500 and 240 days until maturity. This detailed step-by-step solution uses the yield calculation formula and is suitable for finance students at the college level.

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