In: Accounting
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
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