Question

You purchase a bond with an invoice price of $1,330. The bond has a coupon rate of 4.4 percent, and there are 3 months to the next semiannual coupon date. What is the clean price of the bond?

$1,299.00

$1,330.00

$1,319.00

$1,308.10

$1,288.00

Answer 1

Clean price of the bond is the price which excludes the interest accrued since the recent coupon payment. It is calculated as below:
Clean price = Dirty price - accrued interest

Coupon = 4.4%*1000
                           = $44
Since, it is a semi-annual coupon = 44/2 = 22
3 months have passed, therefore,
accrued interest = 22*3/6
                           = $11

Hence, the clean price of the bond
= Invoice price(dirty price) - accrued interest
= $1330 - 11
=$1319

Clean price of the bond is $1319.00