You purchase a bond with an invoice price of $1,119. The bond has a coupon rate of 6.25 percent, a face value of $1,000, and there are four months to the next semiannual coupon date. What is the clean price of this bond?

Question

Quizplus · Accepted Answer

First, we need to calculate the accrued interest using the number of days in the accrual period. Since this bond has four months to the next semiannual coupon date, the accrual period is 4/12 * 182 (days in the coupon period) = 60.67 days. Therefore, the accrued interest is $1,000 * 6.25% * 60.67/182 = $20.91.

Next, we can calculate the dirty price by adding the invoice price and the accrued interest: 
Dirty price = $1,119 + $20.91 = $1,139.91

Finally, we need to subtract the accrued interest from the dirty price to get the clean price: 
Clean price = $1,139.91 - $20.91 = $1,118.00

However, the answer choices are all rounded to the nearest cent, so we need to round our answer to the nearest cent as well. The closest answer choice is A) $1,108.58, which is the correct answer.

You Purchase a Bond with an Invoice Price of $1,119