Question

A coupon bond that pays semiannual interest is reported in the Wall Street Journal as having an ask price of 117% of its $1,000 par value. If the last interest payment was made 2 months ago and the coupon rate is 6%, the invoice price of the bond will be _________.
a. $1,140.

b. $1,170.

c. $1,180.

d. $1,200.

Answer 1

Answer:

Option (C) is correct.

Explanation:

Given that,

Par value = $1,000

Ask price = 117% of par value

Last interest payment was made = 2 months ago

coupon rate = 6%

Invoice price:

= (Par value × ask price percent) + (coupon rate × par value) × Time period

= 1,000 × (1.17) + 60 (2 ÷ 12)

= $1,170 + 10

= $1,180

Therefore, the invoice price of the bond will be $1,180.