Question

The bond has a coupon rate of 6.11 percent, it makes semiannual payments, and there are 2 months to the next coupon payment. A clean price of $977 and the par value is $1000. What is the invoice price?

		$997.37
		$956.63
		$946.45
		$966.82
		$1007.55

Answer 1

The interest is paid semi-annually ( i.e. every 6 months ) and there are 2 months to the next coupon payment, it means that the earlier coupon payment was done 4 months ago [ i.e. 6 months - 2 months ] and hence the accrued interest will be for 4 months [ 6 months - 2 months ]

Accrued interest = Par value * coupon rate * months from the earlier coupon payment / 12 = $1,000 * 6.11% * 4 / 12 = $20.37

Invoice price = Clean price + Accrued interest = $977 + $20.37 = $997.37