Question

Casey just purchased a $1,000 face value bond at an invoice price of $1,288.16. The bond has a coupon rate of 6.2 percent, semiannual interest payments, and the next interest payment occurs one month from today. Of the amount paid for the bond, what was the dollar amount of the accrued interest

Answer 1

The accrued interest is $25.83

Step-by-step explanation:

Since interest on the bond is due in a month's time and the bond pays interest semi-annually it implies that 5 months of interest has been accrued to date, and thus included in the price the bond was sold for.

The accrued interest =$1000*6.2%*5/12

=$ 25.83

The interest included in the price is $ 25.83 , which means that the clean price of the bond is $1262.33 ($1,288.16-$25.83 ).

The actual price of $1,288.16 is known as the dirty price