Question

A government bond with a coupon rate of 5% makes semiannual coupon payments on January 7 and July 7 of each year. The Wall Street Journal reports the asked price for the bond on January 22 at $1,005.9375. What is the invoice price of the bond? The coupon period has 182 days. (Round your answer to 2 decimal places.)

Answer 1

Answer:

The value of the bond is 1,003.8771 after subtracting the accrued interest to the market value of the bond.

Explanation:

From the amount provide by the Wall Street Journal there are two component, the bonds value and the interest accrued over time.

we should calcualte the interst and subtract to get the bond value:

principal x rate x time = interest

rate and time should match, so the 5% rate should be convert into a 2.5% rate and we express time as portion of 182 days:

1,000 x 0.025 x (22-7)/182 = 2,060439 = 2.060439 interest

1,005.9375 - 2.0604 = 1,003.8771