A bond, paying semi-annual coupons of 2% per annum, matures in 8 months time. The interest rate (with semi-annual compounding) for 2 months is 7.60%, while for 8 months, it i O $97.00 $97.96 $99.91 $90.48
A bond, paying semi-annual coupons of 2% per annum, matures in 8 months time. The interest rate (with semi-annual compounding) for 2 months is 7.60%, while for 8 months, it i O $97.00 $97.96 $99.91 $90.48
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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
Transcribed Image Text:A bond, paying semi-annual coupons of 2% per annum, matures in 8 months time. The interest rate (with semi-annual compounding) for 2 months is 7.60%, while for 8 months, it is 6.20%. What is the dirty price of the bond?
$97.00
$97.96
$99.91
$90.48
Expert Solution
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Step 1
Accrued interest= (100*2%*6/12)+(101*6.2%*2/12)
Accrued interest = 1+1.04367 = 2.04367
Dirty price of bond = Purchase price - accrued interest.
= 100- 2.04367
= 97.956
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