Question

You purchase a bond with an invoice price of $1,080. The bond has a coupon rate of 9.6 percent, semiannual coupons, and a par value of $1,000, and there are five months to the next coupon date. What is the clean price of the bond?

Answer 1

Answer:

$1059.98

Explanation:

To determine the clean price, we have to first find the accrued interest.

Accrued interest = (coupon rate × par value/2) × period (months to next coupon date/12)

accrued interest = $96/2 x 5/12

accrued interest = $48 × 0.417

= $20.016

Our  dirty price = $1080

clean price = dirty price - accrued interest

clean price = $ (1080 - 20.016)

Clean price = $1059.98