Question

A 7% semi-annual coupon bond settles 12/11/15 at 105.00 (clean price). Bond maturity is 12/31/25. For a 300 basis points increase in yield, assuming a 30/360-day count convention, what is the new (dirty) price predicted by using modified duration?

Answer 1

Dirty price will be $108.13

Step-by-step explanation:

We have given last coupon date: Jun 30, 2015

Settlement date: Dec 11, 2015

Next coupon date: Dec 31, 2015

Days elapsed since last coupon payment will be equal to
`30* 5+11=161days`

Each coupon amount =
`100* (0.07)/(2)=$3.50`

We have to find the dirty price

Dirty price = clean price + accrual interest

So dirty price will be
`=105+3.5* (161)/(180)=$108.13`