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A bond face value is $1000, with a 6-year maturity. Its annual coupon rate is 7%...

A bond face value is $1000, with a 6-year maturity. Its annual coupon rate is 7% and issuer makes semi-annual coupon payments. The annual yield of maturity for the bond is 6%. The bond was issued on 7/1/2017. An investor bought it on 8/1/2019. Calculate its dirty price, accrued interests, and clean price.

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Expert Solution

The Bond pays coupon payments 1st January and 1st July of every year starting 2018. Third coupon payment was paid on 1st July 2019.

Clean price (as on 1st July, 2019) = present values of remaining coupon payments plus present value of principal repayment

= 35/0.03*(1-1/1.03^9)+1000/1.03^9

=$1038.93

Accrued Interest = 31/184 *$35 = $5.90

(Since there are 31 days from 1st July to 1st Aug and 184 days from1st July to 1st December)

Dirty Price = Clean price + Accrued interest

= $1038.93+$5.90 =$1044.83

jeff jeffy answered 2 years ago
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