Question

The bond has a coupon rate of 6.59 percent, it makes semiannual payments, and there are 2 months to the next coupon payment. A clean price of $1,025 and the par value is $1,000. What is the invoice price

Answer 1

Answer: The answer is $1,046.97

Explanation:

The invoice price will be calculated as:

The clean price + accrued interest on the bond which has been earned by the bond seller but has not yet been paid.

Where:

The clean price = $1,025

Accrued interest = for 4 months (because six months is the frequency of coupon payment, and from the question, we are two months to the next coupon payments). So the accrued interest is caculated as: 4/6 x semiannual coupon payment = 4/6 x 1,000 x 6.59%/2 = $21.97

Recall that:

Invoice price = The clean price + accrued interest

Invoice price = 1,025 + 21.97 = $1046.97.

Answer 2

The answer is: Invoice price = $1,046.97

Step-by-step explanation:

We have:

+ The bond invoice price = The bond clear price + Any accrued interest on the bond which is earned by the bond's sellers but not yet paid (the holding time of the bond from the latest coupon payment was made to the bond' selling time).

+ Accrued interest was for 4 months ( 6 month is the frequency of coupon payment - 2 months to the next coupon payments); so it is caculated as: 4/6 x semiannual coupon payment = 4/6 x 1,000 x 6.59%/2 = $21.97

=> Invoice price = 1,025 + 21.97 = $1046.97.