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You buy a 6% coupon $1,000 par T-bond 59 days after the last coupon payment. Settlement occurs in two days. You become the owner 61 days after the last coupon payment (59+2), and there are 121 days remaining until the next coupon payment. The bonds clean price quote is 120.59375. What is the full or dirty price (sometimes called the invoice price)

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TomShelby

Answer:

dirty price: 1,225.39

Explanation:

When we purchase the bond, we are paying the bond and the accrued interest

bond price: 1,000 x 120.59375/100 = 1,205.9375‬ = 1,205.94

accrued interest at purchase:

face value x bond coupon rate x time

1,000 par value x 6% x 59/(59+2+121) =

1,000 x 0.06 x 59/182 = 19,45

Total amount for the bonds: 1,205.94 + 19.45 = 1,225.39

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