A bond has a coupon rate of 6% making semi-annual payments on January 15 and Jul

ID: 2782938 • Letter: A

Question

A bond has a coupon rate of 6% making semi-annual payments on January 15 and July 15. On February 10 the ask price for the bond was 101.25.

A. On February 10, how many days are left in the coupon period?

B. On February 10, what is the invoice price of the bond?

A 30-year maturity bond has a 6% coupon paid semi-annually and is callable in five years at a call price of 105. The current yield to maturity is 5%.

A. What is the current price of the bond?

B. What is the yield to call?

C. On the call date in five years, what would the yield to maturity have to be for the bond to be called?

Par value of bond = $1,000

Coupon rate = 6%

Semiannual Coupon payment = $1,000 × 6% / 2

= $30.

Clean Price of bond = $1,000 × 101.25

= $1,012.50.

Bond pays coupon on January 15 and July 15.

Number of days left in next coupon = 15 july - 10 February

= 155 days.

On February 10, Number of days are left in the coupon period is 155 days.

Number of days Berween January 15 and February 10 = 26 days.

Accrued interest for 26 days = $30 × (26 / 181)

= $4.31.

Invoice price = Quoted Price + Accrued Interest

= $1,012.50 + $4.31

= $1,016.81.

Invoice Price of bond is $1,016.81.

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