Question

1. A coupon bond is reported as having a flat ask price of 97.0% of the $1,000 par value in the Wall Street Journal. If the last interest payment was made three months ago and the coupon rate is 3.0%, the invoice price of the bond will be A $1,087.50 B. $972.50 C. $977.50 D. $970.00 E. None of the options are correct.

Answer 1

c. $977.50

Ask price = $1,000 * 0.97 = $970

Accrued interest is the coupon payment for the period times the fraction of the period that has passed since the last coupon payment. 3 month has passed since the last coupon payment.

Accrued interest = $1,000 * 0.03 * 3/12 = $7.50

Invoice price = Ask price + Accrued interest

Invoice price = $970 + $7.50

Invoice price = $977.50