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Apisco Tiger Inc. has a 6.6 percent semi-annual coupon bond outstanding. The face value of the bond is $1,000. The bond is being sold at a time with four months left to the next coupon payment date. What is the bond's clean price if it's dirty price is $976.00?

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jepessoa

Answer:

the bond's clean price is $965

Explanation:

The clean price of a bond is given by the following formula:

  • Clean Price = Dirty Price − Accrued Interest

since the bond pays interest every 6 months, and there are 4 months left until the next coupon payment, 2 months have past since it paid its coupon for the last time.

accrued interest = (2 months / 12 months) x 6.6% x $1,000 = $11

dirty price = $976

Clean price = $976 - $11 = $965

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