On October 5, 2015, you purchase a $11,000 T-note that matures on August 15, 202
ID: 2781385 • Letter: O
Question
On October 5, 2015, you purchase a $11,000 T-note that matures on August 15, 2027 (settlement occurs two days after purchase, so you receive actual ownership of the bond on October 7, 2015). The coupon rate on the T-note is 4.385 percent and the current price quoted on the bond is 105.5625 percent. The last coupon payment occurred on May 15, 2015 (145 days before settlement), and the next coupon payment will be paid on November 15, 2015 (39 days from settlement). a. Calculate the accrued interest due to the seller from the buyer at settlement. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Accrued interest due $ b. Calculate the dirty price of this transaction. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Dirty price $
Explanation / Answer
Ans
a. Accrued interest can be calculated using the following formula:
Accrued Interest= Coupon* no. of days from last coupon payment to settlement date/The no of days in a year
= (0.04385/2)*145/184= 0.021925*0.78804=0.017278 or 1.73
b.Dirty price= Clean price+ Accrued Interest
Clean price is the price of bond without the accrued interest.
Dirty price= 105.5625+1.7278= $107.29
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