Question

The 5-year bond of XYZ Corp. has a bid quote of 131.2891 and an asked quote of 131.3047. Assume you purchase one of these bonds with a face value of $5,000 and a coupon rate of 7.4 percent, paid semiannually. The next interest payment will be paid two months from today. What will be your invoice price for this purchase?

		$7,220.01
		$6,690.68
		$6,809.47
		$7,001.32
		$6,549.30

Answer 1

Accrued Interest = Periodic Coupon Payment * [Days since last coupon payment / Days in the coupon period]

= [(7.4%/2)*$5,000] * [4/6] = $37 * 0.67 = $123.33

Invoice Price = [Asked Quote * Face Value] + Accrued Interest

= [131.347% * $5,000] + $123.33

= $6,56735 + $123.33 = $6,690.68

2nd option is correct.