Question

On October 5, 2019, you purchase a $10,000 T-note that matures on August 15, 2031 (settlement occurs two days after purchase, so you receive actual ownership of the bond on October 7, 2019). The coupon rate on the T-note is 4.375 percent and the current price quoted on the bond is 105.250 percent. The last coupon payment occurred on May 15, 2019 (145 days before settlement), and the next coupon payment will be paid on November 15, 2019 (39 days from settlement). a. Calculate the accrued interest due to the seller from the buyer at settlement. b. Calculate the dirty price of this transaction.

Answer 1

A. Accured Interest = Face value * (Coupon rate /2) * (Actual number of days before settlement /(Actual number of days before settlement / Number of days after settlement)

= $10,000 * (0.04375 / 2) * (145 days / (145 days + 39 days))

= $218.75 * (145 days / 184 days)

= $218.75 * 0.788

= $172.37

b. Dirty price = Current price + Accured interest

= ($10,000 * 1.0525) + $172.37

= $10,525 + $172.37

= $10,697.37