Question

Problem #1: A bond issued on February 1, 2004 with face value of $6400 has semiannual coupons of 7%, and can be redeemed for par (face value) on February 1, 2022. What is the accrued interest and the market price (the "clean" price) of the bond on November 15, 2006, if the bond's yield on that date is to be 10%? (use actual/actual for accrued interest).

Answer 1

Clean price of bond is calculated using PRICE function in Excel.

Settlement = settlement date. This is November 15, 2006.

Maturity = maturity date. This is February 1, 2022.

rate = coupon rate. This is 7%

yld = yield to maturity. This is 10%.

redemption = redemption value (as a % of par). This is $100

frequency = coupons per year. This is 2, as the bond has semiannual coupons.

By inputting the values into this function, we get the bond price per $100 of par value.

As the par value of this bond is $6,400 we multiply the answer by 64 ($6,400 / $100)

The clean price of the bond is $4,913.85

B7 X for =PRICE(B1,B2,B3,B4,B5, B6)*64 C D 1 settlement 2 maturity 3 rate 4 yld 5 redemption 6 frequency 7 Clean Price 11/15/2006 2/1/2022 7% 10% 100.00 $4,913.85

Accrued interest = face value of bond * coupon rate * (number of days since last coupon payment / 365)

Last coupon payment date = August 1, 2006 (coupon payment is semiannual)

Number of days from August 1, 2006 to  November 15, 2006 = 107 days

number of days since last coupon payment = 107 days

Accrued interest = $6,400 * 7% * (107 / 365)

Accrued interest = $131.33