A $1000 par, semiannual bond is trading for 89 9/64 has a coupon of 8 3/4 % and has accrued interest of 43.72. The clean price of bond is a) 847.69 b) 891.14 c) 935.13 d) 1000
no maturity? Is it $1000 or $100?
yeah the problem doesn’t say it. i failed this question.
B
clean price is same as current nominal price? 891.14 ?
Don’t worry about the coupon. $1000 par, bond is trading at a discount, so the clean price is 891.41, if it was dirty, add in the accrued (which is the semi coupon pmt thus far for the period).
I’m about to review that section…but I think Amber’s answer is correct.
they could’ve made it more interesting by throwing in the maturity as well! No, they’re not that nasty, are they?
Really wouldn’t make a difference b/c the bond price is factoring in the coupon pmts so far based on the maturity. Unless they didn’t give you the bond price and you had to figure out the PV I guess. If you have ever set up a bond ticket on bloomberg, it’s a typical buy/sell ticket. bond price x shares = principal. Add accrued for the dirty price and find out what the buyer owes the seller.
I thought the clean price is current price less accrued interest, because bonds always quote with accrued interest. Is this not the case??
Shoot, you are right Pepp. I got ahead of myself. You need to back out the accrued. But then the price would be 847.42. Now I am lost, I do this everyday. Mind games i tell you. Must be why econ majors are having trouble with econ. Here is what I do know. You take price x par amount = principal Principal + accrued = Net money owed to seller So the principal is the clean amount right.
pepp>> nop, clean price is current price, dirty price includes accrued interest before next coupon payment. depends on where you buy and who you buy it from. Bonds are otc and not exchange traded (no “trading price” per se. Depends on what the dealer is willing to sell it for and also on how many you’re buying. cheers
My notes say clean price is just price without anything, so I guess B is correct.
Amber that was a good reply The answer is B
google this clean price wiki, dirty price wiki <<<< especially useful
how does a bond quote: dirty or clean? The question says the bond’s current price is 89 9/64 = 891.4 I’d imagine the quoted price is clean, because answer is B. but i am terribly confused, one of the traders, told me bonds always quote with dirty price. Also remember the buyer of the bond has to give seller, the accrued interest.
pepp Wrote: ------------------------------------------------------- > > I’d imagine the quoted price is clean, because > answer is B. but i am terribly confused, one of > the traders, told me bonds always quote with dirty > price. > Pepp, this what threw me too. But when you back out the accrued, the answer is not there. I am going with quoted = clean for the exam. Where is this question from?
quoted clean price, settled dirty
That makes sense jo.
pepp Wrote: ------------------------------------------------------- > how does a bond quote: dirty or clean? > The question says the bond’s current price is 89 > 9/64 = 891.4 > > I’d imagine the quoted price is clean, because > answer is B. but i am terribly confused, one of > the traders, told me bonds always quote with dirty > price. > > Also remember the buyer of the bond has to give > seller, the accrued interest. a bond is always quoted on delaer desks as the clean price…the other stuff in the Q is justthere to throw u off. The price of the bond is trading at 89.14% of par or $891.41. If they had asked for the dirty price you would have had to add accrued interest to the price using a 30/360 or actual/360 day count convention, depending on the mkt in which the bond is being traded.