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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.

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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

jeff jeffy answered 1 year ago
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