7 Based on the following a bond quotation based on 1000 par

7. Based on the following a bond quotation (based on $1,000 par value), 1) find a semiannual coupon payment. 2) bid and asked price in S,_3) asked price on the previous day, and 4) bid-ask spread Maturity Coupon Bid Asked Chg Asked Yield 5/15/2028 4.75 101.075 101.285 056 4.52

Solution

The bond is maturing on 15^th May 2028

Par value or face value = $1,000.

1) Find a semiannual coupon payment,

Its coupon rate = 4.75% per year of par value

Semiannual coupon rate = 4.75%/2 = 2.375% of par value

Semi-annual Coupon in dollars = 2.375% * $1,000 = $23.75

2) Bid and asked price in dollars

The bid price in dollars = Bid quotes * Par value

= 101.075% * $1,000 = $1,010.75

The asked price in dollars = Asked quotes * Par value

= 101.285% * $1,000 = $1,012.85

3) The previous day’s asked price in dollars

Previous day’s asked price = Today’s asked price – Change

= $1,012.85 - (0.056 *$1,000)

= $1,012.85 - $0.56

= $1,012.29

Therefore previous day’s asked price is $1,012.29

4) Bid-Ask spread is the difference between Bid and asked price of bond

Bid-Ask spread = Asked price in dollars - Bid price in dollars

= $1,012.85 - $1,010.75

= $2.10