Question

You purchase a bond with an invoice price of $984.63. The bond has a coupon rate of 8.50 percent, a face value of $1,000, and there are two months to the next semiannual coupon date. What is the clean price of this bond? A. $970.46 B. $1,012.96 C. $956.30 D. $998.80 .

Answer 1

Clean Price of the Bond

Clean Price of the Bond = Invoice Price of the Bond – Accrued Interest for 4 months

Invoice Price of the Bond = $984.63.

Accrued Interest Expenses for 4 months

Accrued Interest Expenses for 4 months = [Face Value of the Bond x Coupon Rate x ½] x [4 Months / 6 Months]

= [$1,000 x 0.085 x 0.5] x [4 Months / 6 Months]

= $42.50 x [4 Months / 6 Months]

= $28.33

Therefore, the Clean Price of the Bond = Invoice Price of the Bond – Accrued Interest for 4 months

= $984.63 - $28.33

= $956.30

“Hence, the Clean Price of this Bond will be $956.30”