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Homework answers / question archive / A bond with a coupon rate of 7% makes semi-annual coupon payments on January 15 and July 15 of each year

A bond with a coupon rate of 7% makes semi-annual coupon payments on January 15 and July 15 of each year

Finance

A bond with a coupon rate of 7% makes semi-annual coupon payments on January 15 and July 15 of each year. The Wall Street Journal reports the ask price for the bond on January 30 at 100.0625 (quoted as 100.0625 at Wall Street Journal). What is the invoice price of the bond? (face value of bond is $1,000)

(assume the bond use actual/actual day count convention, and the 6-month coupon period has 182 days)

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Quoted Bond price = (Ask price / 100) * Face value

Quoted Bond price = (100.0625 / 100) * $1000

Quoted Bond price = $1000.625

Clean price = Quoted Bond price = $1000.625

Coupon per period = (Coupon rate / No of coupon payments per year) * Par value

Coupon per period = (7% / 2) * $1000

Coupon per period = $35

Days between January 15 & January 30 = 15 days

Days between January 15 & July 15 = 182 days

Accrued interest = Coupon per period * (Days between January 15 & January 30 / Days between January 15 & July 15)

Accrued interest = $35 * (15 / 182)

Accrued interest = $2.8846

Invoice (Dirty) price = Clean price + Accrued interest

Invoice (Dirty) price = $1000.625 + $2.8846

Invoice (Dirty) price = $1003.5096 or $1003.51

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