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Ulleksa [173]
3 years ago
6

A government bond with a coupon rate of 7% makes semiannual coupon payments on January 15 and July 15 of each year. The Wall Str

eet Journal reports the asked price for the bond on January 30 at $1,001.25. What is the invoice price of the bond? The coupon period has 182 days.
Business
1 answer:
WINSTONCH [101]3 years ago
7 0

Answer:

invoice price (dirty price) = $1,004.13

Explanation:

semi-annual coupon = $1,000 x 7% x 1/2 = $35

clean price = $1,001.25

accrued interest = (Jan. 30 - Jan. 15) x $35 x 1/182 = $2.88

invoice price (dirty price) = clean price + accrued interest = $1,001.25 + $2.88 = $1,004.13

the dirty price or invoice price of a bond includes any accrued interest that the bond may have earned in the period between the last coupon payment and the transaction date.

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