Question

A coupon bond paying semiannual interest is reported as having an ask price of 120% of its $1,000 par value. If the last interest payment was made one month ago and the coupon rate is 6%, what is the invoice price of the bond

Answer 1

Invoice price = $1,204.95

Step-by-step explanation:

Annual coupon price = $1,000 * 0.6 = $60

Day separating coupon payment = 182 days

Last interest payment made = 30 days

Flat price = Par value * Ask price %

= $1,000 * 120/100

= $1,200

Accrued interest = Annual coupon payment/2 * Day since last coupon payment/Day separating coupon payment

Accrued interest = $60/2 * 30/182

Accrued interest = $4.945

Invoice price = Flat price + Accrued interest

Invoice price = $1,200 + $4.945

Invoice price = $1204.945

Invoice price = $1,204.95