Homework SourseSuppose that a bond is purchased between coupon periods The
Suppose that a bond is purchased between coupon periods. The days between the settlement date and the next coupon period is 115. There are 183 days in the coupon period. Suppose that this bond has a coupon rate of 7.4% and there are 10 semiannual coupon payments remaining.
A. Assuming that the par value is $100, what is the “clean price” for this bond if a 5.6% discount rate is used?
B. What is the accrued interest for this bond?
C. What is the “dirty price?” (i.e., invoice price)
Suppose that a bond is purchased between coupon periods. The days between the settlement date and the next coupon period is 115. There are 183 days in the coupon period. Suppose that this bond has a coupon rate of 7.4% and there are 10 semiannual coupon payments remaining.
A. Assuming that the par value is $100, what is the “clean price” for this bond if a 5.6% discount rate is used?
B. What is the accrued interest for this bond?
C. What is the “dirty price?” (i.e., invoice price)
Suppose that a bond is purchased between coupon periods. The days between the settlement date and the next coupon period is 115. There are 183 days in the coupon period. Suppose that this bond has a coupon rate of 7.4% and there are 10 semiannual coupon payments remaining.
A. Assuming that the par value is $100, what is the “clean price” for this bond if a 5.6% discount rate is used?
B. What is the accrued interest for this bond?
C. What is the “dirty price?” (i.e., invoice price)
Solution
Par value = $1000
A. Clean price (using Excel) = PV (5.6 / 2, 10, -74/2, -1000) = $1077.56
B. Accrued Interest = [(74/2) x (183 - 115)] / 183 = $13.75
C. Dirty / Invoice Price = 1077.56 + 13.75 = $1091.31
