Question

1. What is the current price of commercial paper with face value of $1,000 that matures in 90 days and has an interest rate of 4%?

a. $990.00 b. $937.27 c.$1,010.00 d.$900.00

2. You want to buy a 5% coupon bond whose clean price is $975.00. The bond pays dividends on January 1 and July 1. What price do you pay if you buy the bond on May 8? (Assume 30/360)

a. $992.64 b. $975.00 c. $1,000.00 d.$957.36

Answer 1

Answer: 1. Caculation of Current Price of Commercial Price Let Issue Price be "X" 4% = ( 1000 - X)/X * 360/90*100 90*4*X/36000 = 1000-X 0.01% = 1000-X 1.01X = 1000 X = $ 990 The Option "a" is correct 2. Caculation of Current Price of Bond Price = Clean Price+ Accrued Interest price = $ 975 + ( 1000 *5%* 120/360) Price = $ 975 +17.64 Price = $ 992.64 The Option "a" is correct