On October 5, 2019, you purchase a $13,000 T-note that matures
on August 15, 2031 (settlement occurs two days after purchase, so
you receive actual ownership of the bond on October 7, 2019). The
coupon rate on the T-note is 5.375 percent and the current price
quoted on the bond is 105.5 percent. The last coupon payment
occurred on May 15, 2019 (145 days before settlement), and the next
coupon payment will be paid on November 15, 2019 (39 days from
settlement).
a. Calculate the accrued interest due to the
seller from the buyer at settlement.
b. Calculate the dirty price of this
transaction.
a. | Accrued interest due | |
b. | Dirty price |
_______________________________
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Semi Annual % = 0.05375 /2 = 0.026875
Answer a)
Accrued Interest Percentage = Semi annual Rate x [ NO. of days
before settlement / (NO of days before settlement + NO of days
after settlement)]
Accrued Interest Percentage = 0.026875 x [ 145/ (145 + 39) ] =
0.021179
Accrued Interest = 13,000 x 0.021179 = 275.33
Answer
b.)
Dirty Price Percentage = Current Price% + Accrued Interest% =
105.5% + 2.1179% = 107.6179%
Dirty Price = 13000 x 107.6179% = 13990.327
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