Question

You purchase a bond with a coupon rate of 5.3 percent and a clean price of $951. Assume a par value of $1,000. If the next semi annual coupon payment is due in two months, what is the invoice price?

Answer 1

The invoice price of a bond with a coupon rate of 5.3% and a clean price of $951 is $968.67, which includes four months of accrued interest calculated at $17.67.

Step-by-step explanation:

You have purchased a bond with a coupon rate of 5.3 percent and a clean price of $951, with a par value of $1,000. The invoice price of the bond would be the clean price plus any accrued interest that has built up since the last coupon payment. Since the bond pays semi-annual coupons and the next payment is due in two months, you must calculate the interest that has accrued for four months (since bonds generally pay interest every six months, and two months are remaining).

The semi-annual coupon payment is 5.3 percent of the $1,000 par value divided by two, which equals $26.50 every six months. For four months of accrual, the calculation is:

($26.50 / 6 months) * 4 months = $17.67.

The invoice price would therefore be the sum of the clean price and the accrued interest:

$951 + $17.67 = $968.67.

Answer 2

The invoice price is $ 969.

Step-by-step explanation:

This question requires us to tell the invoice price (dirty price) of the bond. Clean price is given in the question. So we can easily calculate invoice price by adding accrued interest in dirty price. Detail calculation is given below.

Clean price = $ 951 -A

Accrued Interest = (5.3% * 1000)/12*4 = $ 17.67 -B

Invoice price = A+B = $ 969 (approx)