A 10-year, 4.5 percent, semiannual coupon bond issued by Tyler Rentals has a $1,000 face value. The bond is currently quoted at 98.7. What is the clean price of this bond if the next interest payment will occur 2 months from today

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9 August, 15:15

A 10-year, 4.5 percent, semiannual coupon bond issued by Tyler Rentals has a $1,000 face value. The bond is currently quoted at 98.7. What is the clean price of this bond if the next interest payment will occur 2 months from today

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Naima · Answer 1

The Clean price is $987.0

Explanation:

A clean price is the price of the bond which does not take into account the accrued Interest expense from its last payment of interest. The quoted value is considered as the clean value of the bond. By adding back the interest accrued in the quoted price we can calculate the Settlement price of the bond.

Formula for Clean price is as follow

Clean price = Dirty price - Accrued interest

Where Dirty price is the present value of coupon payments including the maturity of the bond.

In this question the clean price is = $1,000 x 98.7% = $987.00