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Bond H, described in the table below, is sold for settlement on 20 April 2020. Annual...

Bond H, described in the table below, is sold for settlement on 20 April 2020.

Annual Coupon

6%

Coupon Payment Frequency

Semiannual

Interest Payment Dates

30 December and 30 June

Maturity Date

30 December 2025

Day-Count Convention

30/360

Annual Yield-to-Maturity

7%

What is the full price (per 100 of par value) that Bond H will settle at on 20 April 2020? Round your answer to three decimal places.

Solutions

Expert Solution

Answer : Full Price = 97

Full Price = Clean Price + Accrued Interest

Clean Price = Interest * PVAF(i,n) + FV * PVF(i,n)

Where,

Interest = 100 * 6% = 6/2 ==> 3

i = Semi Annual YTM (7%/2) ==> 3.50%

n = No. Of period ( 30 Dec 2019 to 30 Dec 2025 = 6 ) ==> 6*2 = 12 ( multiplied by 2 as interest is semiannual)

Clean Price = 3 * 9.66333 + 100 * 0.66178

Clean Price = 28.989 + 66.178 ==> 95.167

Accrued Interest = Annual Interest / 360 * (Days from 1 January 2020 to 20 April 2020)

Accrued Interest = 6 / 360 * 110 ==> 1.833

Full Price = 95.167 + 1.833 ==> 97

jeff jeffy answered 2 years ago
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