question archive Today, June 1, you want to buy a bond with a quoted bid price of 98
Today, June 1, you want to buy a bond with a quoted bid price of 98
Subject:BusinessPrice:2.87 Bought7
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Today, June 1, you want to buy a bond with a quoted bid price of 98.64 and a quoted ask price of 98.66. The bond pays interest on January 1 and July 1. Which one of the following is true? |
| 98.66 percent of par the actual cost to purchase this bond. |
| 98.65 is the bid-ask spread on the bond. (WRONG) |
| 98.66 percent of par plus 1/6 of the coupon payment is the actual cost to purchase this bond. |
| 98.64 percent of par plus 5/6 of the coupon payment is the actual cost to purchase this bond. |
| 98.66 percent of par plus 5/6 of the coupon payment is the actual cost to purchase this bond. |
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Answer:
Quoted Bid price is the price at which the banker buys from the bond holder and sells at Quoted Ask price to US.
Thus, when we want to buy the bond we need to pay the Quoted Ask Price to the bank and purchase the bonds.
Thus, here in this case we need to purchase at Quoted Ask price that is 98.66.
We need to consider the interest component of the bond that is the coupon interest for the period Jan to June that is 5 months period.
Therefore, the correct answer is option E(last option).
