1.A. A corporate bond matures on November 20, 2030. Its coupon rate is 6.00% and
ID: 2790008 • Letter: 1
Question
1.A. A corporate bond matures on November 20, 2030. Its coupon rate is 6.00% and face value is $100. Its yield is 6.05%. How much is its price on September 30, 2017
B. IBM bond pays 6.25% interest on face value of $100, semi-annually on May 21st and November 21st. The bond is sold on August 1st. How much is the accrued interest?
C. Proctor and Gamble Company issues a bond with 5.50% interest, face value $100. Interest is paid semi-annually. Copon dates are April 12th and October 12th. If bond is sold on June 1st how much is the accrued interest?
Explanation / Answer
Problem 1A:
Immediate previous coupon date: Nov 20, 2016
Settlement date: Sep 30, 2017
Maturity date: Nov 20, 2030
Coupons are paid annually.
Time between coupon payments: T = 1 year
Time between Nov 20, 2016 and Sep 30, 2017: t = 314 days = 314/365 Years
t/T = 314/365
N = 14 years
FV = $100
PMT = $6
r = 6.05%
PV = (6/0.0605)*(1 - 1/1.0605^14) + 100/1.0605^14 = 99.536686
PV (Full) = 99.536686*1.0605^(314/365) = 104.695821
Price on settlement date = $104.70
Problem 1B:
t = 72 days = 72/365 year, T = 0.5 year
t/T = (72/365)/0.5 = 144/365
Accrued Interest: AI = PMT*(t/T) = 100*(0.0625/2)*(144/365) = $1.23
Problem 1C:
t = 50 days = 50/365 years, T = 0.5 years
t/T = 100/365
Accrued Interest: AI = PMT*(t/T) = 100*(0.055/2)*(100/365) = $0.75
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