A semi-annual coupon bond is reported as having an ask price of 108% of the $1,000 par value in the Wall Street Journal. If the last interest payment was made 30 days ago and the coupon rate is 9%, the invoice price of the bond will be

Question

Quizplus · Accepted Answer

The invoice price is the sum of the quoted price and the accrued interest. The quoted price is 108% of $1,000, which is $1,080. The semi-annual coupon payment is $45 (9% of $1,000 divided by 2). Since 30 days have passed since the last payment, the accrued interest is $45 * (30/180) = $7.50. Therefore, the invoice price is $1,080 + $7.50 = $1,087.50.

A Semi-Annual Coupon Bond Is Reported as Having an Ask