Question

In: Finance

7) Suppose that a bond is purchased between coupon periods. The days between the settlement date...

7) Suppose that a bond is purchased between coupon periods. The days between the settlement date and
the next coupon period are 90. There are 182 days in the coupon period. Suppose that the bond purchased
has a coupon rate of 6.8% and there are 8 semiannual coupon payments remaining. The par value of the
bond is $100.
a. What is the full price for this bond if a 6.4% annual discount rate is used?
b. What is the accrued interest for this bond?
c. What is the clean price of the bond?

Solutions

Expert Solution

No of periods = 8 semi-annual periods

Coupon per period = (Coupon rate / No of coupon payments per year) * Par value

Coupon per period = (6.8% / 2) * $100

Coupon per period = $3.4

Bond Price = Coupon / (1 + annual discount rate / 2)period + Par value / (1 + annual discount rate / 2)period

Bond Price = $3.4 / (1 + 6.4% / 2)1 + $3.4 / (1 + 6.4% / 2)2 + ...+ $3.4 / (1 + 6.4% / 2)8 + $100 / (1 + 6.4% / 2)8

Using PVIFA = ((1 - (1 + Interest rate)- no of periods) / interest rate) to value coupons

Bond Price = $3.4 * (1 - (1 + 6.4% / 2)-8) / (6.4% / 2) + $100 / (1 + 6.4% / 2)8

Bond Price = $101.3922

Days between the settlement date and the next coupon period = 90 days

Days in the coupon period = 182 days

Full Bond price = Bond price * (1 + annual discount rate / 2)(Days in the coupon period -Days between the settlement date and the next coupon period / Days in the coupon period)

Full Bond price =  $101.3922 * (1 + 6.4% / 2)(182 - 90 / 182)

Full Bond price = $103.0195

Accrued Interest = Coupon per period * (Days in the coupon period - Days between the settlement date and the next coupon period / Days in the coupon period)

Accrued Interest = $3.4 * (182 - 90 / 182)

Accrued Interest = $1.7187

Flat (Clean) Bond Price = Full Bond price - Accrued Interest

Flat (Clean) Bond Price = $103.0195 - $1.7187

Flat (Clean) Bond Price = $101.3008


Related Solutions

7) Suppose that a bond is purchased between coupon periods. The days between the settlement date...
7) Suppose that a bond is purchased between coupon periods. The days between the settlement date and the next coupon period are 90. There are 182 days in the coupon period. Suppose that the bond purchased has a coupon rate of 6.8% and there are 8 semiannual coupon payments remaining. The par value of the bond is $100. a. What is the full price for this bond if a 6.4% annual discount rate is used? b. What is the accrued...
Suppose a trader purchases a bond between coupon periods. The days between the settlement date and...
Suppose a trader purchases a bond between coupon periods. The days between the settlement date and the next coupon period is 45. There are 90 days in the coupon period. Suppose that the bond purchased has a coupon rate of 8.0% and there are four quarterly coupon payments remaining. Face value is $100. a) What is the dirty price of this bond if a 5.6% discount rate is used (assume that 5.6% is compounded quarterly)? b) What is the accrued...
Suppose a trader purchases a bond between coupon periods. The days between the settlement date and...
Suppose a trader purchases a bond between coupon periods. The days between the settlement date and the next coupon period is 45. There are 90 days in the coupon period. Suppose that the bond purchased has a coupon rate of 8.0% and there are four quarterly coupon payments remaining. Face value is $100. a) What is the dirty price of this bond if a 5.6% discount rate is used (assume that 5.6% is compounded quarterly)? b) What is the accrued...
When you buy a bond, the date of purchase (the settlement date) is often between two...
When you buy a bond, the date of purchase (the settlement date) is often between two coupon payment dates. In this situation, the price you pay (the invoice price) is the sum of the flat price and the accrued interest. Invoice price = Flat price + Accrued Interest For a semi-annual payment coupon bond, the accrued interest In this exercise, you compute the invoice price of a $1000 par value, 5% semi-annual payment coupon bond maturing on 30th June 2025...
You buy a 6% coupon $1,000 par T-bond 59 days after the last coupon payment. Settlement...
You buy a 6% coupon $1,000 par T-bond 59 days after the last coupon payment. Settlement occurs in two days. You become the owner 61 days after the last coupon payment (59+2), and there are 121 days remaining until the next coupon payment. The bond’s clean price quote is 120:19. What is the full or dirty price (sometimes called the invoice price)?
8% seminannual coupon corp. bond which matures on Feb 14th 2025, is purchased for settlement on...
8% seminannual coupon corp. bond which matures on Feb 14th 2025, is purchased for settlement on April 15th 2014. The yld to maturity is 6.333% quoted on a street convention semiannual bond basis (APR2). Accrued interest = 30/360 day count convention. (a) What is the flat (clean) price of the bond on the SDT? (use the BA II Plus BOND spreadsheet) (b) What is the accrued interest on the SDT? (use the BA II Plus BOND spreadsheet) (c) How many...
Find the duration of a bond with settlement date June 14, 2016, and maturity date December...
Find the duration of a bond with settlement date June 14, 2016, and maturity date December 21, 2025. The coupon rate of the bond is 8%, and the bond pays coupons semiannually. The bond is selling at a yield to maturity of 9%. (Do not round intermediate calculations. Round your answers to 4 decimal places.) Macaulay duration Modified duration
Find the duration of a bond with settlement date June 15, 2018, and maturity date December...
Find the duration of a bond with settlement date June 15, 2018, and maturity date December 23, 2027. The coupon rate of the bond is 9%, and the bond pays coupons semiannually. The bond is selling at a yield to maturity of 10%. (Do not round intermediate calculations. Round your answers to 4 decimal places.)
Find the duration of a bond with settlement date June 6, 2016, and maturity date December...
Find the duration of a bond with settlement date June 6, 2016, and maturity date December 5, 2025. The coupon rate of the bond is 9%, and the bond pays coupons semiannually. The bond is selling at a yield to maturity of 10%. (Do not round intermediate calculations. Round your answers to 4 decimal places.) Macaulay duration Modified duration
Find the duration of a bond with settlement date June 15, 2018, and maturity date December...
Find the duration of a bond with settlement date June 15, 2018, and maturity date December 23, 2027. The coupon rate of the bond is 9%, and the bond pays coupons semiannually. The bond is selling at a yield to maturity of 10%. (Do not round intermediate calculations. Round your answers to 4 decimal places.) Macaulay duration: Modified duration:
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT