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16 January, 03:52

A customer purchases 8M of City of Los Angeles 4% G. O.'s, maturing in 2038 at 95. The interest payment dates are Jan 1st and Jul 1st. The trade took place on Tuesday, Feb 1st.

How much will the customer pay for the bonds, excluding commissions and accrued interest?

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  1. 16 January, 03:55
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    The amount customers are expected to pay $7600 per bond

    Explanation:

    8M implies that the municipal bond has $8000 as its par value.

    The amount a customer would is 95% of the par value

    Hence, customers are expected to pay $7600 (95%*$8000)

    For instance a 5M at 105 means that the par value of the bond is $5000 but issued at 105%, which translates into $5250 without considering commissions as well as the accrued interest on the bond which might also be factored into the price.
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