Question

You purchase a bond with an invoice price of $1,050. The bond has a coupon rate of 7.2 percent, and there are 4 months to the next semiannual coupon date. Assume a par value of $1,000.

What is the clean price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Clean price

$

Answer 1

Accrued interest is the coupon payment for the period times the fraction of the period that has passed since the last coupon payment. There are 4 months until the next coupon payment, so 2 month has passed since the last coupon payment.

Accrued interest = $72/2 × 2/6

Accrued interest = $12.00

Clean price = Dirty price – Accrued interest

Clean price = $1,050 – $12.00

Clean price = $1,038.00