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solution

You can buy or sell a 2.5% $1000 par U.S. Treasury Note that matures in exactly 6 years (meaning it pays (.025/2)*$1000 coupon payments every 6 months, starting 6 months from now, through maturity, and repays $1000 principal on maturity), with a current yield to maturity of 1.25% (assume a flat term structure of interest rates), for a price today of $1,080.12. Assume semi-annual compounding and coupon payments. What is it currently worth? Would you buy it or sell it?

This question has been asked on chegg but in the answers there’s no explanation as to why the rate is .00625 not .625.

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