Question
In: Finance
A ?ve year $1,000 par-value bond has semiannual coupons of $60 on June 30 and on...
A ?ve year $1,000 par-value bond has semiannual coupons of $60 on June 30 and on December 31 of each year. It is purchased for $986 on Dec. 31, 2015 (the ?rst coupon payment will be June 30, 2016). Find the market price (called semi-practical clean price in our textbook) on August 28, 2018, using actual/actual to compute f.? Please show a step-by-step solution without excel or financial calculator.
Solutions
Expert Solution
| Clean price does not include the accrued interest | ||||||||||
| Hence clean price as on August 28, 2018 will be the | ||||||||||
| Price of the bond as on last coupon date ie,June 30, 2018 | ||||||||||
| Semi annual coupon payment | $60 | |||||||||
| Original purchase price of the bond=$986 | ||||||||||
| Original semiannual period to maturity | 10 | |||||||||
| Semi annualYield to maturity(Using excel RATE function with Nper=10,Pmt=60, PV=-986, FV=1000) | 6.19% | |||||||||
| Period of the bond=5 years | ||||||||||
| Purchased on=December 31,2015 | ||||||||||
| Matuirity date=December 31, 2020 | ||||||||||
| Number of semi annual period remaining after on June 30,2018 | 5 | |||||||||
| Market Price as on August 28, 2018: | ||||||||||
| Present Value of cash flows as on last coupon date(June 30,2018) | $991.96 | (Using PV function of excel with Rate=6.19%,Nper=5,Pmt=-60,FV=-1000 | ||||||||
| Market Price as on August 28,2018(Clean Price) | $991.96 | |||||||||
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