Question

You purchase a bond with an invoice price of $1,054. The bond has a coupon rate of 7.2 percent, and there are four months to the next semiannual coupon date. The bond has a par value of $1,000.
What is the clean price of the bond?

Answer 1

Answer:

$1,042

Explanation:

The computation of the clean price of the bond is shown below:-

Coupon payment = Coupon percentage × Par value ÷ Semi-annually

= 7.2% × $1,000 ÷ 2

= $36

Accrued interest = Coupon payment ÷ 6 × 2

= $36 ÷ 6 × 2

= $12

Clean price of the bond = Invoice price - Accrued interest

= $1,054 - $12

= $1,042

We simply deduct the accrued interest from the invoice price so that the clean price of the bond could come