Question

You purchase a bond with an invoice price of $1,017. The bond has a coupon rate of 5.45 percent, it makes semiannual payments, and there are 4 months to the next coupon payment. The par value is $1,000. What is the clean price of the bond?

$998.83

$1,007.92

$1,044.25

$989.75

$1,026.08

Answer 1

Clean Price of the Bond

Clean Price of the Bond = Invoice Price of the Bond – Accrued Interest for 2 months

Invoice Price of the Bond = $1,017

Accrued Interest Expenses for 2 months = [Face Value of the Bond x Coupon Rate x ½] x [2 Months / 6 Months]

= [$1,000 x 5.45% x ½] x [2 Months / 6 Months]

= $27.25 x 2/6

= $9.08

Therefore, the Clean Price of the Bond = Invoice Price of the Bond – Accrued Interest for 2 months

= $1,017 - $9.08

= $1,007.92

“Hence, the Clean Price of the Bond will be $1,007.92”