A. You purchase a bond with an invoice price of $1,300. The bond has a coupon ra

Question

A. You purchase a bond with an invoice price of $1,300. The bond has a coupon rate of 7.2 percent, and there are 4 months to the next semiannual coupon date. What is the clean price of the bond?

B.

River Corp. has 9.6 percent coupon bonds making annual payments with a YTM of 5.6 percent. The current yield on these bonds is 7.26 percent. These bonds will mature inyears.(Round your answer to 2 decimal places. (e.g., 32.16.))

River Corp. has 9.6 percent coupon bonds making annual payments with a YTM of 5.6 percent. The current yield on these bonds is 7.26 percent. These bonds will mature inyears.(Round your answer to 2 decimal places. (e.g., 32.16.))

Explanation / Answer

A. Dirty Price is Pice actually Paid = quoted price + accrued Int Clean Price = Quotd price No of month in coupon period = 6 No of months already passed = 6-4 =2. So 2 month Int is included in price SO Acctued Int = (4/6)*(7.2%/2)*$1000 = $24 So CLean Price = $1300 - $24 = $1276 ..................Ans (A) b. Current yield = 7.26% Coupon = 9.6% YTM = 5.6% = Rate Lets assume that Face Value = FV = $1000 PMT = COupon *FV = 9.6%*$1000 = $96 Current Yield = PMT/Current price Co CUrrent price = PMT/Current yield = $96/7.26% = $1,322.31=PV So No of Yrs to maturity =nper(Rate,PMT,PV,FV) = nper(5.6%,96,-1322.31,1000) = 11.01 ................Ans (b)

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