Question
Today is August 15, 2020. Chang wants to buy a $150000 face value bond that has a coupon rate of 4.75% (comp. semi.) and that
"Today" is August 15, 2020. Chang wants to buy a $150000 face value bond that has a coupon rate of 4.75% (comp. semi.) and that pays its coupons June 30 and December 31 every year. The bond matures on Dec 30, 2040, and the current interest rate is 5.75% (comp. semi.).
a) What is the amount of each coupon payment?
b) Find the clean price P0 of the bond on June 30, 2020.
c) Use the ACT/ACT daycount convention to calculate the fraction k of the current coupon period based on "today's" date.
d) Find the dirty price "today" using the linear approximation P = P0 * (1 + ik). (Where i is the effective 6 month rate and k is the fraction from part c).)
e) Find the dirty price "today" using the compound interest formula P = P0 * (1 + i)k. (Where i is the effective 6 month rate and k is the fraction from part c).)
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