Question

A coupon bond that pays semiannual interest is reported in the Wall Street Journal as having an ask price of 121% of its $1,000 par value. If the last interest payment was made 3 months ago and the coupon rate is 6.40%, the invoice price of the bond will be _________.

Answer 1

Answer:

The question is missing below options:

A.$1,210.00

B.$1,242.00

C.$1,226.00

D.$1,178.00

Option C,$1,226 is correct.

Explanation:

Ordinarily, the price at which such bonds is offered for sale is the ask price plus the interest accrued to the bond since the last coupon interest payment.

Invoice price=ask price +interest accrued to date

ask price=$1000*121%

ask price=$1000*121/100

ask price=$1,210

Since last coupon was paid three months, intuitively, another coupon interest of three months has accrued to date.

interest accrued to date=$1000*6.40%*3/12

                                       =$16

The 6.40% is annual coupon,hence quarterly coupon is gotten by dividing by 4 or multiplying by 3/12

Invoice price=$1210+$16

invoice price=$1,226

Answer 2

Answer:

$1226

Explanation:

A coupon bond pays semiannual interest and having a asking price=121% of $1000 par value

Last interest of payment over  3 months in a coupon rate=6.40%

Therefore,

1000 x 6.40% =64

Then

1000 (1.21) +((64 (3/12))

1000(1.21) = 16

1210 + 16 = 1226

The Invoice price of the bond is $1226