Question

You purchase a bond with an invoice price of $1,025. The bond has a coupon rate of 5.51 percent, it makes semiannual payments, and there are 5 months to the next coupon payment. The par value is $1,000. What is the clean price of the bond?

Answer 1

Explanation:-

Accrued interest is the coupon payment for yhe period times the fraction pf the period that has passed since the last coupon payment. Since, we have semiannual coupon payment, the coupon payment per six months is one half of coupon payment.

There are 5 months until the next coupon payment, so one month has passed since the last coupon payment.

The accrued income for the bons is:-

55/2×1/6=$ 4.75

Now, clean price= Dirty Price- Accrued Interest

$(1025-4.75)= $1020.25 ans.