Question

A coupon bond paying semiannual interest is reported as having an ask price of 119% of its $1,000 par value. If the last interest payment was made one month ago and the coupon rate is 5%, what is the invoice price of the bond? Assume that the month has 30 days. (

Answer 1

Answer:

The invoice price of the bond is $1,194.17

Explanation:

The computation is shown below:

= Current Ask price + accrued interest

where,

Current Ask price = Ask price × percentage given

                             = $1,000 × 119%

                              = $1,190

And, accrued interest = Ask price × coupon rate × number of months ÷ total number of months in a year

= $1,000 × 5% × (1 month ÷ 12 month)

= $4.17

Now put these values to the above formula

So, the value would equal to

= $1,190 + $4.17

= $1,194.17