Question

A 9% coupon bond with an ask price of 100:00 pays interest every 182 days. If the bond paid interest 112 days ago, the clean price of the bond would be

Answer 1

$100

Step-by-step explanation:

The computation of the clean price is shown below:

As we know that

Clean Price = Dirty Price − Accrued Interest

where,

Dirty price is

= Ask price + Accrued interest

The ask price is $100

And, the accrued interest is

= $100 × 9% × 112 days ÷ 360 days

= $2.74

Now the dirty price is

= $100 + $2.74

= $102.74

Therefore the clean price of the bond is

= $102.74 - $2.74

= $100

Or we can say that the ask price equivalent to the clean price of the bond as both are the quoted prices