Question

In: Accounting

American Can Company issued a 30-year, semiannual coupon bond with a maturity date of 11/15/2045. The...

American Can Company issued a 30-year, semiannual coupon bond with a maturity date of 11/15/2045. The PAR value of the bond is $1000, the coupon rate is 5.00 percent and the current yield to maturity is 4.75 percent. Today’s date is Monday 3/7/2017 and you would like to determine the clean price and accrued interest on this bond assuming you execute a trade today. Assume the settlement date is T+2. Using the bond spreadsheet on your financial calculator, what is the clean price and accrued interest as a percent of PAR? Multiple Choice

103.887, 1.583

103.887, 1.555

102.588, 0.778

102.587, 0.799

103.887, 1.588

Solutions

Expert Solution

Next Coupon Date is 15th of May (Semi Annual Coupon Rate)

settlement date is T+2. So Transaction Done on Monday 3/7/2017 Will be completed on 3/10/2017.

So No of Days to Next Coupon : March = 21 April = 30 May = 15

Total Days D = 21 + 30 + 15 = 66 Days

Accrued Interest   =

F = Face Value =1000

C = Coupon Rate = 5% = 0.05

m = Period = 02 semiannual

T = No of Days in period =180

Accrued Interest   =

= 15.8333

accrued interest as a percent of PAR = Accrued Interest / Face Value = 15.8333 / 1000 = 1.583%

Clean Price

r = YTM/02 = 4.75% / 02 = 0.02375

n = 30 Year * 02 - 02   = 58 [ As 02 Nos of Coupon already Paid : Bond Issue Date 11/15/2015 ]

c =5% = 0.05/02 = 0.025

c*F = 0.025 * 1000 = 25

Dirty Price

= 782.84 + 256.30

=1039.14

Percent Value = 103.914

Nearest price from given option = 103.887

Ans : accrued interest as a percent of PAR = 1.583%

Dirty Price = 103.887

Option A


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