Valuing a bond between coupon payments, Financial Management

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.

Posted Date: 9/10/2012 5:59:57 AM | Location : United States







Related Discussions:- Valuing a bond between coupon payments, Assignment Help, Ask Question on Valuing a bond between coupon payments, Get Answer, Expert's Help, Valuing a bond between coupon payments Discussions

Write discussion on Valuing a bond between coupon payments
Your posts are moderated
Related Questions
Demand and Supply Shocks The influence of the above macroeconomic factors on the economic performance can be analyzed by classifying their impact on the economy as a supply or

What are the coupon bonds security instruments? Coupon bonds are contractual agreements by the borrowers to make regular payments (known as coupons or interest) until a specifi

Q. Future Value of a Series of Equal Cash Flows? Quite often a decision may result in the occurrence of cash flows of the same amount every year for a number of years consecuti

What is the importance of leverage in business management of a small scale company

suppose perfect competition prevails in the market for hotel rooms. the current market equilibrium price of a stanar hotel room is 100 per night

Define the Explicit cost of capital Explicit cost of retained earnings that involve no future flows to or from firm is minus 100 per cent. This must not tempt one to infer that

Info on applying CVP to product mix limiting factors

Demerits of Pay Back Method:- (i) It ignores the Cash Flows after the Pay Back Period: - The main shortcoming of this method is that it completely ignores all cash inflows subs

Briefly Explain Non Financial Objectives Monetary statements of any sort are only an expression of organisational activities that can be measured. Lots of the activities of an

Case Study - Credit-Linked Notes Credit linked notes are assets issued by financial institutions which have exposure to the credit risk of a reference Issuer . These notes pay