Question

Consider a bond with a 9.3% coupon and a yield to maturity of 8.4% maturing in just over 28 years. Suppose the bond was purchased 20 days after the most recent coupon was paid. If there are 180 days in the current coupon period, find (based on $1000 face value)

(a) The Full Price

(b) The Clean Price

Answer 1

b

Particulars	Cash flow	Discount factor	Discounted cash flow
present value Interest payments-Annuity (4.2%,56 periods)	$                         46.50	21.43182	$                996.58
Present value of bond face amount -Present value (4.2%,56 periods)	$                    1,000.00	0.09986	$                  99.86
Bond price			$             1,096.44
Face value			$             1,000.00
Premium/(Discount)			$                  96.44
Interest amount:
Face value	1,000
Coupon/stated Rate of interest	9.300%
Frequency of payment(once in)	6 months
Interest amount	1000*0.093*6/12=		$                  46.50
Present value calculation:
yield to maturity/Effective rate	8.40%
Effective interest per period(i)	0.084*6/12=		4.200%

Clean price is 1,096.44

a

Full price = 1,096.44 + 1000*8.4%*6/12*20/180 = 1101.61