A coupon bond paying semiannual interest is reported as havingan ask price of 85, paying...

A coupon bond paying semiannual interest is reported as having an ask price of 85, paying on the 1st of January and July. If today is Feb. 5th, and the annual coupon rate is 4%, what is the invoice price? Round to the nearest penny.

Expert Solution

Par value of bond = $1000

Semi-annual Coupon Payment = $1000*4%*1/2

= $20

Ask Price today on Feb 5th = $1000*85% = $850

Semi-annual coupon rate are paid on January 01 and July 01 every year.

- Invoice price includes Accrued Interest while Ask price does not include accrued Interest.

Accrued Interest earned from Jan 01 to Feb 5 ,i.e., in 35 days = Semi-annual Coupon Payment*35/182

= $20*35/182 = $3.85

Invoice price = Ask Price + Accrued Interest

= $850 + $3.85

Invoice price = $853.85

jeff jeffy answered 2 years ago

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