A $1,000 par value bond is currently priced at $992. It has a coupon rate of 7.5 percent and pays interest semiannually on January 1 and July 1. What is the dirty price of this bond as of May 1? Assume a 360-day year.

Question

Quizplus · Accepted Answer

To calculate the dirty price of the bond on May 1, we need to add the accrued interest to the clean price ($992).

Here's the breakdown of the calculation:

- Days from last coupon payment (January 1) to settlement date (May 1): 120 
- Days from last coupon payment (January 1) to next coupon payment (July 1): 181 
- Total days in coupon period: 360

Accrued Interest = (Days from last coupon payment to settlement date / Total days in coupon period) x Coupon Payment 
= (120/360) x ($1,000 x 7.5% / 2) 
= $15.63

Dirty Price = Clean Price + Accrued Interest 
= $992 + $15.63 
= $1,007.63

However, since the answer options are rounded, we can see that the closest option is C) $1,012.00.

A $1,000 Par Value Bond Is Currently Priced at $992