If you buy $10,000 of the second bond today: (a) What will be the dates of your

Question

If you buy $10,000 of the second bond today:

(a) What will be the dates of your next three coupons?

(b) How much will each coupon payment be?

(c) How much accrued interest is payable in the purchase price, given US T-Bonds use Actual/Actual, and the settlement procedure T+1 means the settlement will occur the next day 26 September 2018?

financial calculator method please *

Today is 25 September 2018 and the following two US Treasury bond are observed: Maturity 15 August 2028 15 August 2028 Coupon | 2.875% PA APR | 5.500% PA APR Bid | 982891 | 120.5391 Asked 98.3047 120.5547 Asked Yield 3.075% PA APR 3.073% PA APR

Explanation / Answer

a. The next three coupon dates will be 15th Februray 2019, 15th August 2019 and 15th February 2020. Becuase bonds are semi annual and they pay coupon twice a year.

b. Since the coupon is 5.50% , eachsemi annual coupon = 0.055*1000/2 = $27.5 (Assuming a face value of $1000)

c. When you purchase the bond, you get the next coupon on Feb 15, 2019 and the coupon period will be from 16th August 2018 to 15te Feb 2019

Since you bought the bond on 25th Sep and it was settled on 26th Sep, You will have to pay interest for the previous bondholder from 15th August to 25th September. 16 days in August + 25 days in September = 16+25 = 41 days

Total number of days = 16 (august) + 30 (Sep) + 31 (Oct) + 30(Nov) + 31(Dec) + 31(Jan) + 15 (Feb) = 184 days

Coupon payment for 41 days (Actual/actual) = 41/184 *27.50 = 6.1277

A ccrued interest tthat is payable in the purchase price = $6.1277

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