Question

A coupon bond that pays interest annually is reported in the Wall Street Journal as having an ask price of $1170. If the last interest payment was made 2 months ago and the coupon rate is 6%, the invoice price of the bond will be _________.

Answer 1

Invoice price = $1,180.

Step-by-step explanation:

interest accrued since last interest payment (interest for 2 months) = Default value * Stated interest * 2 /12

Interest accrued = $1000 * 6% *2/12

Interest accrued = $10

Invoice price = Ask price + interest accrued

Invoice price = $1,170 + $10

Invoice price = $1,180.