Question

You buy a 6% coupon $1,000 par T-bond 59 days after the last coupon payment. Settlement occurs in two days. You become the owner 61 days after the last coupon payment (59+2), and there are 121 days remaining until the next coupon payment. The bond’s clean price quote is 120:19. What is the full or dirty price (sometimes called the invoice price)?

Answer 1

Compute the accrued interest, using the equation as shown below:

Accrued interest = Face value*Coupon rate*Days outstanding/ Days in a year

                           = $1,000*6%*61 days/ 365 days

                           = $10.02739726

Hence, the accrued interest is $10.02739726.

Compute the dirty price, using the equation as shown below:

Dirty price = Accrued interest + Clean price

                  = $10.02739726 + $120.19

                  = $130.21739726

Hence, the dirty price is $130.21739726.