Answer-first summary for fast verification
Answer: $109.89
The bond pays a semiannual coupon of \(9\%/2 = 4.5\) per period on \$100 par. - Yield per semiannual period = \(4\%/2 = 2\%\) - Settlement is **one month before** the next coupon date, so the first coupon is discounted for \(1/6\) of a semiannual period. - There are 5 remaining cash flows: 4 coupons of \$4.5 and a final coupon + principal of \$104.5. Dirty price: \[ P_{dirty}= \sum \frac{CF_t}{(1.02)^{t}} \approx 113.64 \] where the exponents are \(1/6, 7/6, 13/6, 19/6, 25/6\). Accrued interest: \[ AI = 4.5 \times \frac{5}{6} = 3.75 \] Clean (flat) price: \[ P_{clean}=113.64-3.75=109.89 \] So the nearest answer is **A. $109.89**.
Author: Manit Arora
Ultimate access to all questions.
Question-505.1. A US corporate bond that matures on October 1st, 2017 with a par value of $100.00 pays a semi-annual coupon with a coupon rate of 9.0% per annum. It pays coupons on April and October 1st and it offers a yield to maturity (yield) of 4.0% per annum. If it settles on September 1st 2015, which is nearest to the bond's flat (aka, quoted or clean) price?
A
$109.89
B
$111.78
C
$113.64
D
$115.53
No comments yet.