Question

a coupon bond that pays seminanual interest is reported in the wall street journal as having an ask price of 120% of it 1000 par value if the last interest payment was made 3 months ago and the coupon rate is 4% the invoice price of the bond will be

Answer 1

Answer:Invoice on price of bond =$1209.89

Step-by-step explanation:

Annual coupon amount = 1000 x 4%= 40

Payments made semi annually, therefore number of days before every payment = 365/ 2 = 182.5 = 182 days

Last interest payment = 3 months ago, taking each ,month = 30 days , we have 30 x 3 = 90 days

Flat price = par value x asking price percent = 1000 x 120%= $1200

Accrued interest = (Annual coupon interest /2)x ( days since last payment/ days separating coupon payments

= (40/2) x (90/182) = 20 x 0.4945= $9.890

Invoice on price of bond = flat price + accrued interest

$1200 +$9.890

=$1209.89