a 1000 bond with semiannual coupons i^(2)=6% matures at par on October 15, 2010. The bond is purchased on June 28, 2005 to yield the investor i^(2)=7%. What is the purchase price? Assume simple interest between bond coupon dates and note that April 15 is the 105th day of the year, June 28 is the 179th day of the year, and Oct 15 is the 288th day of the year.
A. 906, B. 907, C. 908, D. 919, E. 925
Please, no excel spreadsheets.
In this queastion we have to determine the purchase price of a bond between bond coupon dates
First of all we have to find the price of the bond on the previous coupon date of April 15, 2005.
On that date, there are 31 coupons (of $30 each) left. So the price on April 15, 2005 is:
P=1000v31+30a31|=0.035orP=1000+(30-35)a31| =0.035.
Thus P = $906.32
Time left between 105 day and 179 day and 288 days are as follow
179-105 = 74 days
288-105=183 days
so calculation will be as follow
Then Price (June 28) = 906.32[1+(74/183)(0.035)] = $919.15
