Question

You purchase a bond with an invoice price of $934. The bond has a coupon rate of 5 percent, and there are 4 months to the next semiannual coupon date. What is the clean price of the bond? Enter the answer with 2 decimals (e.g. 954.23).

Answer 1

913.17

Step-by-step explanation:

we need to first calculate the accrued interest.

The semiannual coupon payment is calculated as follows:

Coupon payment = (Coupon rate * Face value) / 2

= (5% * $1000) / 2

= $25

Since there are 4 months to the next semiannual coupon date, the accrued interest can be calculated as follows:

Accrued interest = (Number of days since last coupon date / Number of days in coupon period) * Coupon payment

= (4 months * 30 days/month) / (6 months * 30 days/month) * $25

= $20.83

The clean price of the bond can then be calculated as follows:

Clean price = Invoice price - Accrued interest

= $934 - $20.83

= $913.17

Therefore, the clean price of the bond is $913.17