You purchase a bond with a Dirty price of $948. The bond has a coupon rate of 5.9 percent, and there are four months to the next semi annual coupon date. Assume a par value of $1,000. What is the clean price of the bond?

$938.17

Explanation:

Calculation for the clean price of the bond

First step is calculate the Accrued Interest using this formula

Accrued Interest = Par Value of the bond *(Annual Coupon Rate / Number of Periods in a Year) *(Days since last payment of coupon/ Total Days in Coupon Period)

Where,

Par Value of the bond = $1000

Annual Coupon Rate = 5.9%

Number of Periods in a Year = 2 Semiannual payments

Let plug in the formula

Days since last payment of coupon = 180 – 120

Days since last payment of coupon = 60

(we assume 360 days in a year as well as 30 days in a month)

Total Days in Coupon Period=(60days+30day)*2

Total Days in Coupon Period = 90 days*2

Total Days in Coupon Period = 180

Let plug in the formula

Accrued Interest = $1,000 * (5.9%/2) * (60/180)

Accrued Interest= $9.83

Now let calculate the Clean Price using this formula

Clean Price = Dirty Price - Accrued Interest

Clean price = $948 - $9.83

Clean Price= $938.17

Therefore the clean price of the bond will be $938.17

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