Explanation:
The dirty price of the bond is calculated as N = 10; I/Y = 2.5; PMT = 30; FV = 1,000; CPT → PV = $1,043.76. Adjusting the PV for the fact that there are only 90 days until the receipt of the first coupon gives $1,043.76 × (1.025)<sup>90/180</sup> = $1,056.73. Clean price = dirty price − accrued interest = $1,056.73 − $30(90 / 180) = $1,041.73.
(Book 3, Module 45.1, LO 45.c)
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Question 2
A $1,000 par corporate bond carries a coupon rate of 6%, pays coupons semiannually, and has 10 coupon payments remaining to maturity. Market rates are currently 5%. There are 90 days between settlement and the next coupon payment. The dirty and clean prices of the bond, respectively, are closest to:
A
$1,043.76, $1,013.76.
B
$1,043.76, $1,028.76.
C
$1,056.73, $1,041.73.
D
$1,069.70, $1,054.70.
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