Question

5. (6 pts)  You initiated a transaction to purchase a 4.000% coupon 30-year corporate bond on Friday  8/30/2019.  The maturity date of the bond is 3/25/2031 and its yield to maturity is 3.774%.   Please answer the following questions about this bond.  (Note: you can check your work in parts (f), (g) and (h) using the BOND spreadsheet in your calculator, but I want to see the equations setup and worked through in those parts for full credit.)

(a)  What are the two dates every year on which the bond pays its coupons.

(b)  On what date was the last (previous) coupon paid?

(c)  What is the settlement date (SDT) for this bond? (Remember the Labor Day holiday!)

(d)  How many days are there in the current coupon period?

(e)  How many days between the last coupon and the SDT?

 (f)  What is the full price of the bond on the SDT?  Draw a timeline for just the current coupon period (like we did in class) and calculate the bond’s full price using “Method 2” in the handout, which is the method used in the text and slides).   

(g)  What is the accrued interest on the SDT?

(h)  What is the clean price of the bond on the SDT?

 

6. (6 pts)  Using the data from problem (5) above, show how you would use the BOND spreadsheet in your financial calculator to solve for the bond clean price and accrued interest.  For each prompt below, enter EXACTLY what you would key into your BA II Plus calculator BOND spreadsheet for that prompt.  For the last two fields, show the bond clean price and accrued interest that the calculator returns to you when you press the CPT key.

SDT:  

CPN:  

RDT: 

RV: 

360 or ACT (highlight the correct setting)

1/Y or 2/Y (highlight the correct setting)

YLD:

PRI: 

AI: 

 

Answer 1

a) 30 August and 28 February every year

b) 3/25/2031 last date of the coupon

c) 3/27/2031

d) 181 days are there for the first coupon.