Suppose that there are 4 semi-annual coupons remaining for a 7%
coupon bond. There
are 104 days until the next coupon payment date and there are 182
days in a coupon period. Assuming
that the annualized discount rate on a bond-equivalent yield basis
is 10%, what is the clean price of this
bond? Par value is $100.
Clean value of bond is value of bond without accrued interest
Value of bond is present value of cashflows
Face value = 100
No of periods till maturity is = 4%
Per period coupon rate = 7%/2 = 3.5%
Per period discount rate is = 10/2 = 5%
Value of bond is
3.5(PVIFA 5% 4P) + 100(pvif 5% 4p)
=3.5(3.546) + 100(0.8227)
= 94.681
Accrued interest is not added because we are calculating clean value which excludes accrued interest
clean value of bond is 94.681
thank you
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