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
Under what circumstances would market to book value ratios be misleading?  Explain. The Market to Book ratio is helpful, however it is only a irregular approximation of how li

To value an option-free bond, we must determine the on-the-run yield curve for the particular issuer whose bond we have to value. This on-the-run yield curve used

Will you please define the working capital and Calculation of working capital? I need urgent help in my assignment. help me!

1. Each student has been allocated one Australian company. This information is available in the unit website. You should check that a company is assigned to you. 2. It is your r

SCL Ltd., a highly profitable company, is engaged in the manufacture of power intensive products. As part of its diversification plans, the company proposes to put up a windmill to

Having seen the measure used for analyzing the convertible bonds, let us now examine the merits and demerits of convertible bonds, and why or wh

Question 1: Give an account of the role of governmental bodies and officials in the making of public policies. Question 2: What do you understand by the term "Governmen

Considering the following information, what is the price of the share as per Gordon’s Model? Details of the Company Net sales Rs.120 lakhs Net profit margin 12.5% Outstandi


Advantage of mutual funds Mutual Funds are advantageous to individual investors in relation to their direct involvement in investment portfolio activity covering the following