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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. 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)
Expert Solution
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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