On October 5, 2013, you purchase a $10,000 T-note that matures on August 15, 2024 (settlement occurs...

Question

On October 5, 2013, you purchase a $10,000 T-note that matures on August 15, 2024 (settlement occurs two days after purchase, so you receive actual ownership of the bond on October 7, XXXXXXXXXXThe coupon rate on the T-note is 4.375 percent and the current price quoted on the bond is 105:08 (or 105.25% of the face value of the T-note). The last coupon payment occurred on May 15, XXXXXXXXXXdays before settlement), and the next coupon payment will be paid on November 15, XXXXXXXXXXdays from settlement). ( LG 6-2

a. Calculate the accrued interest due to the seller from the buyer at settlement.

b. Calculate the dirty price of this transaction.

Robert · Accepted Answer

a. 
Accrued interest over the 145 days is calculated as: 
 
4.375% 145
1.723845%
2 184
    
Of the face value of the bond, or $172.38 per $10,000 face value bond. 
b. 
Dirty Price = Clean price + Accrued Interest 
                     = 10,000 x 105.25% +$172.

On October 5, 2013, you purchase a $10,000 T-note that matures on August 15, 2024 (settlement occurs two days after purchase, so you receive actual ownership of the bond on October 7, XXXXXXXXXXThe...

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