
Explanation:
For a U.S. corporate bond, use 30/360 and discount the remaining cash flows at the semiannual yield.
$1,000 × 8% / 2 = $40Dirty price:
This evaluates to approximately:
So the correct answer is $1,080.35.
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Q-170.4. A $1,000 par U.S. corporate bond settles on February 3rd, 2011 and pays an 8.0% semi-annual coupon on January and July 1st. The yield on the bond is 5.0% and the bond matures on January 1st, 2014 such that six (6) semi-annual coupon payments remain. What is the dirty price (a.k.a., full price) of the bond?
A
$1,080.35
B
$1,087.38
C
$1,102.24
D
$1,256.38
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