Question

A coupon bond that pays semiannual interest is reported in the Wall Street Journal as having an ask price of 113% of its $1.000 par value. If the last interest payment was made 3 months ago and the coupon rate is 5.60%, the invoice price of the bond will be

a. $1,130.00
b. $1,158.00
c. $1,44.00
d. $1,102.00

Answer 1

The invoice price of the bond will be $1,144.24. Therefore, option c, $1,144.24, is the correct answer.

Step-by-step explanation:

The invoice price of the bond can be calculated using the formula:

Invoice price = Ask price + Accrued interest

The asking price of the bond is given as 113% of its $1,000 par value, which is $1,130. The accrued interest can be calculated by multiplying the coupon rate by the number of days since the last interest payment and dividing by 365.

In this case, the coupon rate is 5.60%, and the number of days since the last interest payment is 3 months, which is equivalent to 91 days. Thus, the accrued interest is $14.2466.

Adding the asking price and accrued interest, the invoice price of the bond will be $1,130 + $14.2466 = $1,144.2466. Therefore, option c, $1,144.24, is the correct answer.