Question

You buy a 4% coupon T-bond with par value of $1,000. You become the owner 125 days after the last coupon payment, and there are 57 days remaining until the next coupon payment. The bond’s clean price is $900. Calculate the dirty price (also referred to as the full price or invoice price).

Answer 1

Par value of bond = $1000

Semi-annual Coupon Payment = $1000*4%*1/2

= $20

You become the owner of the Bond after 125 days after the last Coupon Payment.

Bond's Clean Price (or also known as Quoted Price) = $900

- Invoice price includes Accrued Interest while Quoted price is clean price which does not include accrued Interest.

Accrued Interest for 125 days = Semi-annual Coupon Payment*125/(125+57)

= $20*125/182 = $13.74

Dirty Price = Clean Price + Accrued Interest

Dirty Price = $900 + $13.74

Dirty price = $913.74

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