A 20-year bond with a $1000 face value was issued with a yield to maturity of 4.5% and pays coupons semiannually. After ten years, the yield to maturity is still 4.5% and the clean price of the bond is $960.09. After three more months go by, what would you expect the dirty price to be?

Question

Quizplus · Accepted Answer

The dirty price includes accrued interest. Since the bond pays semiannual coupons, after three months (halfway through the coupon period), the accrued interest would be half of the semiannual coupon payment. The clean price is $960.09, so the dirty price would be $960.09 plus half of the semiannual coupon.

A 20-Year Bond with a $1000 Face Value Was Issued