It is May 1. The quoted price of a bond with an Actual/Actual (in period) day count and 12% per annum coupon in the United States is 105. It has a face value of 100 and pays coupons on April 1 and October 1. What is the cash price??
A) 106.00
B) 106.02
C) 105.98
D) 106.04

Question

Quizplus · Accepted Answer

To calculate the cash price, we need to understand how many days have passed since the last coupon payment (April 1) and how many days are remaining until the next coupon payment (October 1).

Days since last coupon payment (April 1 to May 1) = 30
Days remaining until the next coupon payment (May 1 to October 1) = 153
Total days in the period (April 1 to October 1) = 183

Using the Actual/Actual (in period) day count, we can calculate the accrued interest as follows:

Accrued Interest = Coupon payment * (Days since last coupon payment / Total days in the period)
= 12 * (30/183)
= 1.967

Therefore, the cash price of the bond is equal to the quoted price plus accrued interest, which is:

Cash Price = Quoted Price + Accrued Interest
= 105 + 1.967
= 106.967

Rounding this to the nearest cent gives us a cash price of 105.98, which is option C.

It Is May 1