Question

# A coupon bond that pays semiannual interest is reported in the Wall Street Journal as having...

A coupon bond that pays semiannual interest is reported in the Wall Street Journal as having an ask price of 98% of its \$1,000 par value. If the last interest payment was made 50 days ago, and this interest period has 183 days, and the coupon rate is 4.27%, what is the invoice price of the bond?

The Invoice Price of the bond consist of the ask price of the Bond and the Interest accrued for 50 Days

Ask Price of the Bond = Face Value of the Bond x Percentage of Quote

= \$1,000 x 983%

= \$980.00

Interest accrued for 50 Days

Semiannual coupon amount = \$21.35 [\$1,000 x 4.27% x ½]

Therefore, the Interest accrued for 50 Days = Semi-annual coupon amount x (50 Days / 183 Days)

= \$21.35 x (50 Days / 183 Days)

= \$5.83

Therefore, The Invoice Price of the Bond = Ask Price of the Bond x Interest accrued for 50 Days

= \$980.00 + \$5.83

= \$985.83

“Hence, the Invoice Price of the Bond will be \$985.83”

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