Question

QUESTION 13 A coupon bond has an ask price of 106%. If the last semi-annual coupon payment was made one month ago and the coupon rate is 9%, what is the full price of the bond? a. $1,067.50. b. $1,075.00 O c. $1,090.00 d. $1,105.00.

Answer 1

Answer to Question 13:

Face Value = $1,000

Asked Price = 106% * Face Value
Asked Price = 106% * $1,000
Asked Price = $1,060

Annual Coupon Rate = 9%

Interest for 1 month is accrued.

Accrued Interest = Face Value * Annual Coupon Rate * Time Period
Accrued Interest = $1,000 * 9% * (1/12)
Accrued Interest = $7.50

Full Price = Asked Price + Accrued Interest
Full Price = $1,060 + $7.50
Full Price = $1,067.50

Answer to Question 14:

Face Value = $100,000

Annual Coupon Rate = 5%
Annual Coupon = 5% * $100,000
Annual Coupon = $5,000

Issue Value = 98% * Face Value
Issue Value = 98% * $100,000
Issue Value = $98,000

Number of Coupon Payments = 20

Total Amount Paid = Annual Coupon * Number of Coupon Payments + Face Value
Total Amount Paid = 20 * $5,000 + $100,000
Total Amount Paid = $200,000

Total Interest Expense = Total Amount Paid - Issue Value
Total Interest Expense = $200,000 - $98,000
Total Interest Expense = $102,000