Question

A​ five-year bond with a​ $1,000 face value has a yield to maturity is ​% and its coupon rate is ​% paid annually. the dirty price of this bond exactly 6 months after its second coupon payment is closest​ to:

Answer 1

coupon payment is closest​ to $1,079.80.

What is coupon rate ?

• The coupon rate is the annual income an investor can expect to receive while holding a particular bond.
• It is fixed when the bond is issued and is calculated by dividing the sum of the annual coupon payments by the par value.
• At the time it is purchased, a bond's yield to maturity and its coupon rate are the same.

FV = $1000, YTM = 5%, and PMT = 6.7% of 1000 = $67.

N = 3 and so using the PV function we get: PV(5%, 3, 67, 1000) = $1,046.30. So clean price = 1,046.30

Now for 6 months accrued interest = 67/2 = 33.50

Thus dirty price = 1,046.30+33.50

= $1,079.80

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