On September 1, 2012 an investor purchases a $10,000 par T-Bond that matures in 12 years. The coupon rate is 6% and the investor buys the bond 70 days after the last coupon payment (110 days before the next). The ask yield is 7%. The dirty price of the bond is:

Question

Quizplus · Accepted Answer

The dirty price of the bond can be calculated by adding the accrued interest to the clean price. The accrued interest can be found by multiplying the coupon payment by the fraction of the coupon period that has elapsed since the last coupon payment. In this case, the accrued interest is 300*(70/180) = 116.67.

To find the clean price, we need to discount the cash flows (coupon payments and principal) at the yield to maturity, which is 7%. Using a financial calculator, we can find that the clean price is $9,197.08.

Finally, we can calculate the dirty price by adding the accrued interest to the clean price: $9,313.75. Therefore, the best choice is C.

On September 1, 2012 an Investor Purchases a $10,000 Par