Question

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?

Answer 1

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”