Question

3) A corporate bond that was issued on March 1, 2016. The bond has a 9% semiannual coupon and the par value is 1,000. Assume the coupon dates are September 1 and March 1.
If you buy the bond on June 19, 2018, how much you should pay? (a 360-day year)

Answer 1

A 9% semi annual interest means Interest of $45 (4.5%) is paid on 1st March and 1st Sep respectively. Assuming that the payouts of $45 has been made for 09/01/2016, 03/01/2017, 09/01/2017 and 03/01/2018 ($180 total), on buying the bond on June 19, 2018, You pay as below:

Face Value of Bond: $1,000

Add: Interest earned: (1,000*(111/360)*(9%)/2) = $27.75

Total: $1,027.75

Here, the 111 denotes the number of days between 6/19/2018 and 3/1/2018, 360 is the assumed total days in a year, 9%/2 is the rate of interest for a six month period.