Valuing a bond between coupon payments, Financial Management

Assignment Help:

Most of the time, an investor buys a bond between coupon payments. In such transaction, the buyer must compensate the seller of the bond for the coupon interest earned from the time of the last coupon payment to the settlement date of the bond. This amount is called accrued interest. So the buyer pays the seller the agreed price plus the accrued interest. This is known as full price. The price of the bond without the accrued interest is known as clean price. The buyer recovers the accrued interest when the next coupon payment is received. 

Now we will explain how to change the PV formula to calculate the full price of a bond when it is purchased between coupon payments.

In some market it is known as a dirty price.


Related Discussions:- Valuing a bond between coupon payments

Accounting framework, Accounting Framework The rules and conventions o...

Accounting Framework The rules and conventions of accounting are generally referred to as the conceptual framework of accounting.  As already elaborates in the previous sectio

Calculate betas against local indexes, Does is make any sense to calculate ...

Does is make any sense to calculate betas against local indexes when a company has a great part of its operations outside this local market? Both the betas calculated against l

Financial accounting, Financial accounting: Financial accounting attemp...

Financial accounting: Financial accounting attempts to establish the value of a particular organisation at a specific point in time, and its earnings over a specified period of

State the rate of return of a bond - debt securities, Rate of return of a B...

Rate of return of a Bond In case of bonds, rather than dividends, investor is entitled to payments of interest yearly or semi-annually. Investor also benefits if there is an ap

Explain the cash flow of the volatility, 1. Let's look at the cash flow of ...

1. Let's look at the cash flow of the volatility (variance) spread swap: - ( σ 2 Nasdaq - σ 2 S & P 500 ) N 2 It is noticeable from this expression that investor

Compute the rate of return on investment, Suppose you are a euro-based inve...

Suppose you are a euro-based investor who simply sold Microsoft shares which you had bought six months ago. You had invested 10,000 euros to buy Microsoft shares for $120 each shar

Multi-period compounding or else future value, Multi-period Compounding or ...

Multi-period Compounding or else Future Value :- If the company determination compounding interest half-yearly (semi-annually) instead of annually then investors will gain as he wi

Agency relationship, Solutions to shareholders and government agency proble...

Solutions to shareholders and government agency problemquestion #Minimum 100 words accepted#

Municipal securities, Municipal Securities are debt securities ...

Municipal Securities are debt securities issued by a State, Municipality or a County in order to finance its capital expenditures. These securit

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd