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Nathan is buying a $1,000 face value bond at a quoted price of $1018.74. The
bond carries a coupon rate of 6 percent, with interest paid semi-annually. The next
interest payment is four months from today. What is the dirty price of this bond?

Respuesta :

Tundexi

The dirty price of this bond is $1,028.74.

Firstly, let understand that dirty price of this bond means the price of a coupon bond including accrued interest while Clean price of bond is the price of a coupon bond not including any accrued interest.

  • Here, the formulae for Dirty Price = Clean price + Accrued interest since the last interest payment.

  • We have been given out Clean Price which has the accrued interest. This is stated in the question "$1018.74"

  • Now, let find the Accrued interest for past 2 months (i.e.6 month - 4 month as stated in question).

[tex]Accrued interest = PRT / 100\\Accrued interest = ($1000 * 6 * 2/12) / 100 \\Accrued interest = $10[/tex]

  • Now, Dirty price = $1018.74 + $10 = $1,028.74

In conclusion, the dirty price of this bond is $1,028.74.

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