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Essentials Of Investments
Found in: Page 329
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

Short Answer

A coupon bond paying semi-annual interest is reported as having an ask price of 117% of its $1,000 par value. If the last interest payment was made one month ago and the coupon rate is 6%, what is the invoice price of the bond?

$11, 174.95

See the step by step solution

Step by Step Solution

Given Information

Coupon rate = 6%

Interest payment = Semi-annual (0.5)

Bond Price = $1000

Ask Price = 117%

Explanation on Yield to Maturity as in option ‘b’

Semi-annual coupon payment = Coupon Payment/2

= $1000 x 6% x 0.5

= $ 30

Accrued interest = Semi-annual coupon payment / 2 x Days since last coupon payment / Days separating coupon payment

= 30 x 30 /182

= $4.945

At a price of 117,

Invoice price = $1170 + $4945

= $11, 174.95

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