Question

A 9% coupon rate, semiannual payment, $1,000 par value bonds that mature in 25 years. Coupon payments are paid on January 01 and July 01 every year. You purchased the bond on September 01 and received an invoice price of $950. What is the quoted price on September 01?

Answer 1

Par value of bond = $1000

Semi-annual Coupon Payment = $1000*9%*1/2

= $45

Semi-annual coupon rate are paid on January 01 and July 01 every year.

Invoice price of Bond on September 01 = $950

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

Accrued Interest earned from July 01 to Sept 01,i.e., in 2 months = Semi-annual Coupon Payment*2/6

= $45*2/6 = $15

Quoted price = Invoice Price - Accrued Interest

= $950 - $15

Quoted price on September 01 = $935

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