Question

A. Price 20 year treasury bond, 4 ¼ coupon rate; assume yield

to maturity of 3.75%.
b. 60 days later compute the bond dirty price, accrued interest and
clean price. Assume the coupon period is 182 days.

Answer 1

To compute the bond's dirty price 60 days later, you need to consider the accrued interest. Use the present value formula to calculate the clean price, and subtract the accrued interest from the dirty price to get the final clean price.

Step-by-step explanation:

To calculate the bond's dirty price 60 days later, we need to consider the accrued interest. The accrued interest is the interest that has accumulated since the last coupon payment. Since the coupon period is 182 days, the bond has accrued interest for 60/182 * coupon payment.

Once we have the accrued interest, we can calculate the dirty price by adding the accrued interest to the clean price. The clean price is the present value of the bond's future cash flows discounted at the yield to maturity. To calculate the clean price, we can use the present value formula: PV = C/(1 + r)^1 + C/(1 + r)^2 + ... + C/(1 + r)^n + F/(1 + r)^n, where C is the coupon payment, r is the yield to maturity, n is the number of periods, and F is the face value.

With the dirty price and the accrued interest, we can compute the clean price by subtracting the accrued interest from the dirty price.