Final answer:
The cash price for the government bond with a 12% coupon and a quoted price of 110-17 is $1,105.31.
Step-by-step explanation:
The question is asking to calculate the cash price of a government bond with a 12% coupon that matures on July 27, 2011, and has a quoted price of 110-17. The term 110-17 represents the bond price in terms of percentage of its face value and a fraction of 1%. To calculate the cash price, we take the 110% part, which would be $1,100 (since 100% of the bond's face value, which is generally $1,000, is $1,000, and hence 110% would be $1,100), and then add the 17/32 of a percent.
To find the value of 17/32 of a percent of the face value, you calculate 17/32 * 1/100 * $1,000, which equals $5.3125. Adding this to $1,100 gives $1,100 + $5.3125 = $1,105.3125. This amount then needs to be rounded to the nearest cent, resulting in a cash price of $1,105.31. Therefore, the correct answer is not listed among the provided options.
When calculating bond prices in such a manner, it is clear how bond quotes translate to a cash price. In this example, the bond is trading at a premium because its coupon rate is higher than the current market interest rate. Also, we observe the influence that market interest rates have on the price of bonds, as they affect the discount or premium applied to the bond's face value.