You purchase a bond with an invoice price of $1,053 and a par value of $1,000. The bond has a coupon rate of 5.3 percent, and there are four months to the next semiannual coupon date. What is the clean price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Clean price
You purchase a bond with an invoice price of $1,053 and a par value of $1,000. The bond has a coupon rate of 5.3 percent, and there are four months to the next semiannual coupon date. What is the clean price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Clean price
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
Related questions
Question
100%
![### Bond Pricing Exercise
**Scenario:**
You purchase a bond with an invoice price of $1,053 and a par value of $1,000. The bond has a coupon rate of 5.3 percent, and there are four months to the next semiannual coupon date.
**Question:**
What is the clean price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
**Input Box:**
- **Clean price:** [ ___________ ]
### Understanding Bond Prices
In this exercise, we are calculating the clean price of a bond. The clean price is the price of the bond excluding accrued interest.
#### Important Terms:
- **Invoice Price:** Also known as the dirty price, it includes the bond's price plus any accrued interest.
- **Par Value:** The face value of the bond, typically $1,000.
- **Coupon Rate:** The annual interest rate paid by the bond's issuer.
- **Semiannual Coupon Date:** Bonds typically pay interest semiannually (twice a year).
### Calculation Steps:
1. **Determine the time period for accrued interest:**
The problem states four months to the next coupon date, meaning we'd need accrued interest for 2 months (since interest accrues daily over a six-month (semiannual) period).
2. **Calculate the semiannual coupon payment:**
\[
\text{Semiannual Coupon Payment} = \left(\frac{\text{Coupon Rate}}{2}\right) \times \text{Par Value}
\]
3. **Calculate the accrued interest:**
\[
\text{Accrued Interest} = \left(\frac{\text{Semiannual Coupon Payment}}{6} \times 2\right)
\]
4. **Calculate the clean price:**
\[
\text{Clean Price} = \text{Invoice Price} - \text{Accrued Interest}
\]
**Note:** Ensure to perform precise calculations without rounding off intermediate values, and round the final clean price to two decimal places.
By following these steps, one can find the clean price of the bond. Enter the calculated clean price in the provided input box.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0505985e-243e-4b9e-b7a6-bbe3450b2962%2F9610a8a3-bff2-417b-94f8-da9a83372422%2Fnr7az7q_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Bond Pricing Exercise
**Scenario:**
You purchase a bond with an invoice price of $1,053 and a par value of $1,000. The bond has a coupon rate of 5.3 percent, and there are four months to the next semiannual coupon date.
**Question:**
What is the clean price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
**Input Box:**
- **Clean price:** [ ___________ ]
### Understanding Bond Prices
In this exercise, we are calculating the clean price of a bond. The clean price is the price of the bond excluding accrued interest.
#### Important Terms:
- **Invoice Price:** Also known as the dirty price, it includes the bond's price plus any accrued interest.
- **Par Value:** The face value of the bond, typically $1,000.
- **Coupon Rate:** The annual interest rate paid by the bond's issuer.
- **Semiannual Coupon Date:** Bonds typically pay interest semiannually (twice a year).
### Calculation Steps:
1. **Determine the time period for accrued interest:**
The problem states four months to the next coupon date, meaning we'd need accrued interest for 2 months (since interest accrues daily over a six-month (semiannual) period).
2. **Calculate the semiannual coupon payment:**
\[
\text{Semiannual Coupon Payment} = \left(\frac{\text{Coupon Rate}}{2}\right) \times \text{Par Value}
\]
3. **Calculate the accrued interest:**
\[
\text{Accrued Interest} = \left(\frac{\text{Semiannual Coupon Payment}}{6} \times 2\right)
\]
4. **Calculate the clean price:**
\[
\text{Clean Price} = \text{Invoice Price} - \text{Accrued Interest}
\]
**Note:** Ensure to perform precise calculations without rounding off intermediate values, and round the final clean price to two decimal places.
By following these steps, one can find the clean price of the bond. Enter the calculated clean price in the provided input box.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education