The bond has a coupon rate of 6.23 percent, it makes semiannual payments, and there are 4 months to the next coupon payment. A clean price of $989 and the par value is $1,000. What is the invoice price?

Invoice price = $999.38

Explanation:

DATA

coupon rate = 6.23%

clean price = $989

par value = $1,000

invoice price = ?

Solution

As mentioned above the interest is paid semi-annually and there are 4 months to the next coupon payment it means that the last coupon payment was made 2 months ago therefore the accrued interest will be paid for 2 months.

Working

6 months coupon payment = $1000 x 6.23% x 6/12

6 months coupon payment = $31.15

Accrued interest for 2 months = $31.15 x 2/6

Accrued interest for 2 months = $10.38

Invoice price = Clean price + Accrued interest

Invoice price = $989 + $10.38

Invoice price = $999.38