Question

In: Finance

A $16,000 bond redeemable at par on July 27, 2012 is purchased on October 19, 2002....

A $16,000 bond redeemable at par on July 27, 2012 is purchased on October 19, 2002. Interest is 6.9% payable semi-annually and the yield is 7.3% compounded semi-annually.

a. What is the cash price?

b. What is the accrued interest?

c. What is the quoted price?

Solutions

Expert Solution

We will make use of the PRICE function of excel to get the clean price or the quoted price. Please see the table below. The last row highlighted in yellow is your answer. Figures in parenthesis, if any, mean negative values. All financials are in $. Adjacent cells in blue contain the formula in excel I have used to get the final output.

Accrued interest = Par value x coupon rate x nos. of days / 365

Nos. of days between Settlement date of 10/19/2002 and last coupon date of 7/27/2002 = 84 days

Hence, accrued interest = 16,000 x 6.90% x 84 / 365 = 254.07

Part (a)

The cash price = Quoted price + accrued interest =  7,987.98 + 254.07 = $  8,242.05

Part (b)

The accrued interest = $ 254.07 (as calculated earlier)

Part (c)

The quoted price = $  7,987.98 (as calculated using excel in the snapshot above)

jeff jeffy answered 3 months ago
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