Question

Agro Bonds were issued several years ago.   Investor Gadget sells $100 par of the bonds mid-accrual period settlement on 8/19/2020.
Coupon = 6%; Coupon Payment Frequency Semi-annual; Interest Payment Dates are March 31 and Sept 30th; Maturity Date September 30th, 2023; Day Count Convention = 30/360;   Yield-to-Maturity 4%

Given this information: What are the Full (Dirty) proceeds of the sale of this bond closest to on August 19th, 2020?
(assume the bond does not accrue interest on 8/19)

		108.11
		106.47
		105.5
		109.32

Answer 1

First, we calculate the clean price of the bond. Clean price is calculated using PRICE function in Excel.

Settlement = settlement date

Maturity = maturity date

rate = coupon rate

yld = yield to maturity

redemption = redemption value (% of par)

frequency = number of coupon payments per year

basis = 30/360

By inputting the values into this function, we get the bond price.

The clean price of the bond is $105.80

accrued interest = par value * coupon rate * (number of days since last coupon payment / 360)

As per the 30/360 convention, there are 30 days in each month.

Last coupon payment was on March 31.

Therefore, number of days since last coupon payment = 30 + 30 + 30 + 30 + 19 = 139 days

accrued interest = $100 * 6% * (139 / 360)

accrued interest = $2.32

Dirty price = clean price + accrued interest

Dirty price = $105.80 + $2.32

Dirty price = $108.11