A 7.5% coupon bond with an ask price of $100.00 pays interest every 182 days. If the bond paid interest 62 days ago, the invoice price of the bond would be

Question

Quizplus · Accepted Answer

The invoice price of a bond includes the quoted price plus accrued interest since the last interest payment. The accrued interest can be calculated as follows: $Accrued\ Interest = \frac{Annual\ Interest\ Payment \times Days\ Since\ Last\ Payment}{Days\ in\ Year}$. For a 7.5% coupon bond with a face value of $1000 (since bond prices are typically quoted per $100 of face value), the annual interest payment is $7.5\% \times $1000 = $75$. Assuming a 365-day year and that interest was paid 62 days ago, the accrued interest is $\frac{$75 \times 62}{365} \approx $12.77$. Adding this to the ask price of $1000 (not $100 as the question seems to imply, but understanding it's meant per $100 of face value), the invoice price is $1012.77.

A 75% Coupon Bond with an Ask Price of $100