nect FINANCE Bonds instructions help KQuestion 9 (of 10) save & Exit Submit valu

Question

nect FINANCE Bonds instructions help KQuestion 9 (of 10) save & Exit Submit value 10.00 points You purchase a bond with an invoice price of $1,026. The bond has a coupon rate of 7.2 percent, a $1,000 par value, and there are four months to the next semiannual coupon date. What is the clean price of the bond? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) Clean price References eBook & Resources Worksheet Difficulty intermediate Leaning oObjective 07-02 Bond valués and elts and why they nuctuate

Explanation / Answer

Solution: $1,014

Explanation:

Accrued interest refer to payment of the coupon for the period times the fraction of the period that has passed since the last coupon payment. Because in this case we have semiannual coupon bond, the coupon payment per six months equals one-half of the annual coupon payment. There are four months until the next coupon payment, and two months since the last coupon payment have already passed.

Accrued interest = $72/2 * 2/6 = $12

Clean price = Dirty price - Accrued interest = $1,026 - $12= $1,014

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