Question

A Treasury bond is quoted with a price of 96-14. It has a coupon of 2.25% and a final maturity of 4/15/45 (and coupon payment dates of 4/15 and 10/15). The bond trades at that price on 12/7/16 on a regular way basis. The face amount of the transaction is $10 million.

What is the dollar price for $10 million (excluding accrued interest) based on a price of 96-14?

AND

What is the accrued interest?

Answer 1

a). Dollar Price = [96 + (14/32)]% x $10 million

= 96.4375% x $10 million = $9.64375 million, or $9,643,750

b). Accrued interest is the coupon payment for the period times the fraction of the period that has passed since the last coupon payment. We have a semiannual coupon bond, the coupon payment per six months is one-half of the annual coupon payment. So, 53 days have passed since the last coupon payment.

Accrued Interest = [(2.25%/2) x $10 million] x [53/182]

= $0.1125 million x 0.2912 = 0.03276 million, or $32,761