Consider a corporate bond with a $1000 face value,10% coupon with semiannual coupon payments,5 years until maturity,currently selling for a cash price of $1113.80.The next coupon payment will be made in 63 days and there are 182 days in the current coupon period.The clean price for this bond is closest to:

Question

Quizplus · Accepted Answer

To calculate the clean price of a bond, we need to subtract the accrued interest from the dirty price (cash price). Accrued interest is the interest that has accumulated since the last coupon payment. Here, the next coupon payment is in 63 days, which means that there are 119 days (182 - 63) of accrued interest. To calculate the accrued interest, we need to find the daily coupon rate:
Daily coupon rate = Annual coupon rate / 2 * 365 = 0.1 / 2 * 365 = 0.000137
Accrued interest = Daily coupon rate * Face value * Accrued days = 0.000137 * 1000 * 119 = $16.33
Clean price = Cash price - Accrued interest = $1113.80 - $16.33 = $1097.47
However, note that none of the answer choices is exactly $1097.47. The closest answer choice is D, $1081.10.

Consider a Corporate Bond with a $1000 Face Value,10% Coupon