Q-10-251

Expert-verifiedFound in: Page 330

Book edition
9th

Author(s)
Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus

Pages
748 pages

ISBN
9780078034695

**Question: Consider a bond with a settlement date of February 22, 2012, and a maturity date of March 15, 2020. The coupon rate is 5.5%. If the yield to maturity of the bond is 5.34% (bond equivalent yield, semi-annual compounding), what is the list price of the bond on the settlement date? What is the accrued interest on the bond? What is the invoice price of the bond?**

**Answer**

List price = 101.71

Accrued interest = 0.6391

Invoice price = 101.349

Semi annual coupon rate = 5.5%

Semi-annual yield to maturity rate = 5.34 %

The semi-annual coupon = 5.34 % x face value = 5.5% x 100 = 5.5

Here:

C = 5.5

YTM / 2 = 0.534

t = 8

F = 100

The list price is the sale price divided by the difference of 1 minus the result of discount divided by 100.

L = S / (1 – D/100)

List price of Bond = 101.71

The formulae for accrued income = (accrued interest rate / 2 ) x ( days between ask price date and last interest payment / coupon period ) x ask price

= 5.5% x (21/ 182 ) x 100.71

Hence accrued interest = 0.6391

Invoice price = Ask price + Accrued income

= 100.71 + 0.6391 = 101.349

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