Question

You buy a 6% coupon $1,000 par T-bond 59 days after the last coupon payment. Settlement occurs in two days. You become the owner 61 days after the last coupon payment (59+2), and there are 121 days remaining until the next coupon payment. The bonds clean price quote is 120.59375. What is the full or dirty price (sometimes called the invoice price)

Answer 1

dirty price: 1,225.39

Step-by-step explanation:

When we purchase the bond, we are paying the bond and the accrued interest

bond price: 1,000 x 120.59375/100 = 1,205.9375‬ = 1,205.94

accrued interest at purchase:

face value x bond coupon rate x time

1,000 par value x 6% x 59/(59+2+121) =

1,000 x 0.06 x 59/182 = 19,45

Total amount for the bonds: 1,205.94 + 19.45 = 1,225.39