Question

Today, you are buying a $1,000 face value bond at an invoice price of $987. The bond has a coupon rate of 6 percent and pays interest semiannually. There are two months until the next coupon date. What is the clean price of this bond?

Answer 1

Answer:

clean price is $967

Explanation:

given data

face value = $1000

invoice price = $987

rate = 6 % = 3% semiannually

to find out

clean price

solution

we know here two months until the next coupon date so time is for 4 month

so clean price will be calculated as

clean price = bond price  - Interest accrue   .....................1

Interest accrue = 1000 × 3% × 4/6

Interest accrue = $20

so from equation 1

clean price = 987 - 20

clean price is $967