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FRM Part I · FRM Exam Part I · Bond Yields and Return Calculations

A bond pays an 8% annual coupon in semiannual installments on a face value of 100. Settlement occurs 60 days into a 180-day coupon period, and the full (dirty) price is 103.50. Using a linear accrual, what is the clean price?

The clean price is 102.17. Accrued interest is the semiannual coupon of 4 times 60/180, which is 1.33. Clean price equals the dirty price minus accrued interest: 103.50 minus 1.33. Adding the accrual instead would incorrectly give 104.83.

  1. A102.17Correct
  2. B104.83
  3. C100.83
  4. D103.50

Explanation

The semiannual coupon is 4. Accrued interest = 4 × 60/180 = 1.3333. Clean price = 103.50 - 1.3333 = 102.17. Adding the accrual gives 104.83, and accruing the annual 8 coupon gives the wrong 100.83.

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