You purchase a bond with an invoice price of $1,095. the bond has a coupon rate of 9.9 percent, semiannual coupons, and a par value of $1,000, and there are two months to the next coupon date. what is the clean price of the bond?

The clean price of the bond is $1,062.

Explanation:

Accrued interest is the coupon payment for the period times the fraction of the period that has passed since the last coupon payment. Since we have a semiannual coupon bond, the coupon payment per six months is one-half of the annual coupon payment. There are two months until the next coupon payment, so four months have passed since the last coupon payment. The accrued interest for the bond is:

Accrued interest = $99/2*4/6

                            = $33

And we calculate the clean price as:

Clean price = Dirty price – Accrued interest

                   = $1,095 – 33

                   = $1,062

Therefore, The clean price of the bond is $1,062.

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