Question

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.

Answer #1

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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