The following information relates to Questions
bond G, described in the exhibit below, is sold for settlement on 16 June 2020.
$\begin{array} { l l }
\text { Annual Coupon } & 5 \% \
\text { Coupon Payment Frequency } & \text { Semi-annual } \
\text { Interest Payment Dates } & 10 \text { April and } 10 \text { October } \
\text { Maturity Date } & 10 \text { October } 2022 \
\text { Day Count Convention } & 30 / 360 \
\text { Annual Yield-to-Maturity } & 4 \%
\end{array}$
-The full price that bond G settles at on 16 June 2020 is closest to:
A) 102.36.
B) 103.10.
C) 103.65.

Question

The following information relates to Questions 
bond G, described in the exhibit below, is sold for settlement on 16 June 2020.
 $\begin{array} { l l } 
\text { Annual Coupon } & 5 \% \
\text { Coupon Payment Frequency } & \text { Semi-annual } \
\text { Interest Payment Dates } & 10 \text { April and } 10 \text { October } \
\text { Maturity Date } & 10 \text { October } 2022 \
\text { Day Count Convention } & 30 / 360 \
\text { Annual Yield-to-Maturity } & 4 \%
\end{array}$
-The full price that bond G settles at on 16 June 2020 is closest to:
A) 102.36.
B) 103.10.
C) 103.65.

Quizplus · Accepted Answer

The full price of a bond includes both the clean price and the accrued interest. Given the semi-annual coupon of 5%, each payment is 2.5% of the face value. The bond is settling on 16 June 2020, which means it is settling 67 days after the last coupon payment on 10 April 2020 (using the 30/360 day count convention, April to June is considered as 2 months or 60 days, plus 7 days in June). The accrued interest is therefore $2.5\% \times \frac{67}{180}$ (since there are 180 days in a semi-annual period under the 30/360 convention). The yield-to-maturity (YTM) is 4%, but since the bond pays semi-annually, we use 2% for each period's calculations. The present value of future cash flows (coupons and principal) discounted back at the YTM would give us the clean price. Adding the accrued interest to the clean price gives us the full price. The calculation involves discounting the future coupon payments and the face value at the semi-annual yield and adding the accrued interest. The correct answer, after performing these calculations, is closest to option B, 103.10.

The Following Information Relates to Questions Bond G, Described

The Following Information Relates to Questions
Bond G, Described