Answer: $10,095.07

## Explanation To calculate the bond's quoted price, we need to determine the present value of all future cash flows discounted at the yield to maturity (4.00%). ### Key Information: - **Face Value**: $10,000 - **Coupon Rate**: 6.50% (annual) - **Coupon Payment**: $10,000 × 6.50% = $650 per year, paid semi-annually ($325 every 6 months) - **Maturity Date**: August 15, 2017 - **Settlement Date**: July 1, 2014 - **Last Coupon**: February 15, 2014 - **Next Coupon**: August 15, 2014 - **YTM**: 4.00% (annual) ### Step 1: Calculate Time Periods From settlement (July 1, 2014) to maturity (August 15, 2017): - July 1, 2014 to August 15, 2014: 45 days (accrued interest period) - Total periods from settlement to maturity: 3 years, 1.5 months ≈ 6.25 semi-annual periods ### Step 2: Calculate Present Value of Cash Flows Using semi-annual compounding: - **Semi-annual YTM**: 4.00% ÷ 2 = 2.00% - **Number of periods**: 7 full semi-annual periods **Cash Flows**: - 7 coupon payments of $325 each - Final payment: $10,000 + $325 = $10,325 **Present Value Calculation**: \[PV = \sum_{t=1}^{7} \frac{325}{(1.02)^t} + \frac{10,325}{(1.02)^7}\] ### Step 3: Calculate Accrued Interest From last coupon (Feb 15) to settlement (July 1): 136 days From last coupon to next coupon: 181 days \[Accrued\ Interest = \frac{136}{181} × 325 = \$244.20\] ### Step 4: Calculate Quoted Price \[Quoted\ Price = Full\ Price - Accrued\ Interest\] \[Full\ Price = \$10,339.27\] \[Quoted\ Price = \$10,339.27 - \$244.20 = \$10,095.07\] Therefore, the nearest quoted price is **$10,095.07**, which corresponds to option C.

Author: LeetQuiz .