Seen a few posts questioning whether or not we have to be able to calculate clean/dirty prices and accrued interest. The LOS for Reading 67 doesn’t mention it. What do you think? Safe to skip it? It’s a painful calculation, but if you want to know… http://www.analystforum.com/phorums/read.php?11,843153,843153#msg-843153
If it’s not in the LOS, you don’t need it. Personally, I think that if you can guesstimate you should be fine. E.g., assume bond quoted clean then if settlement is Nov 30 last semi-annual 6% coupon was June 30 then dirty price = 100*6%/2*(5/12) = 1.25 added on to clean price. That’s close enough (or exactly right) for anything that CFAI is going to throw at you on any level. Edit: oops, multiplied wrong. hehe
it tells you if you put it in the calc when using the bond function
JP_RL_CFA Wrote: ------------------------------------------------------- > it tells you if you put it in the calc when using > the bond function That it does. The only problems I have seen with it so far during my studying are something like “A bond is trading at the clean price of XXX. The accrued interest since the last coupon date is XXX. What is the dirty price of the bond?”
the BAIIPlus also provides a function to compute accrued interest if you use the down arrow one more time after computing the clean price
I really think you should nearly throw away your calculators…
Joey, You wrote: dirty price = 100*6%/2*(5/12) + clean price Wouldn’t it be dirty price = (100*(6%/2))*(5/6) + Clean price since you are 5 months through the 6 month period between coupons?
By "semi-annual 6% coupon " I meant that the yearly coupon rate was 6% paid semi-annually. Is that the confusion?
No, I think I got that. (Bond pays6% annually or 3% twice each year, 3% at the end of June and 3% at the end of Dec) My confusion is why you adjust by 5/12 rather than 5/6 since you are 5 months through the 6 month period.
Geez - you’re right what the heck was I writing there? You’re right of course.
Chasinggoats seems right