On October 5, 2019, you purchase a $10,000 T-note that matures on August 15, 2031 (settlement occurs two days after purchase, so you receive actual ownership of the bond on October 7, 2019). The coupon rate on the T-note is 4.375 percent and the current price quoted on the bond is 105.250 percent. The last coupon payment occurred on May 15, 2019 (145 days before settlement), and the next coupon payment will be paid on November 15, 2019 (39 days from settlement). a. Calculate the accrued interest due to the seller from the buyer at settlement. b. Calculate the dirty price of this transaction.

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Business

Makayla Day

31 May, 16:06

On October 5, 2019, you purchase a $10,000 T-note that matures on August 15, 2031 (settlement occurs two days after purchase, so you receive actual ownership of the bond on October 7, 2019). The coupon rate on the T-note is 4.375 percent and the current price quoted on the bond is 105.250 percent. The last coupon payment occurred on May 15, 2019 (145 days before settlement), and the next coupon payment will be paid on November 15, 2019 (39 days from settlement). a. Calculate the accrued interest due to the seller from the buyer at settlement. b. Calculate the dirty price of this transaction.

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Andrea Oneill · Answer 1

a. Accrued interest due to the seller from the buyer at settlement: $176.22.

b. The dirty price of this transaction: $10,348.78.

Explanation:

a. The accrued interest due to seller from the buyer = Par value of the bond x coupon rate x number of days the last coupon was made before the settlement / 360 = 10,000 x 4.375% x 145/360 = $176.22.

b. The Dirty price of the Bond = The quoted price of the bond (also known as the clean price) - the accrued interest due to seller from the buyer = (10,000 x 105.250%) - 176.22 = $10,348.78.