What Determines the Quoted Price of a Bond?

[sherim]

What is a quoted price of a bond?
Is it a clean price?

I think it is the present value of the face value of a bond, am I correct?

What is the quoted price of a bond that has 4.5 years until maturity? The face value of the bond is $5,000 and it has a coupon rate of 8.1% compounded semi-annually and a yield rate of 8.6% compounded semi-annually.

Here's what I did:
Using the formula of PV=FV(1 + i)^-n
5000(1 + 0.043)^-9
5000(0.068460682)
3,423.03

But given the multiple choice answers I have, I am wrong.
The choices were: 4908.32, 4888.32, 4898.32, 4998.32 or 4809.32

I would appreciate any help/insight. Thanks

 

[HallsofIvy]

What is a quoted price of a bond?
Is it a clean price?

I think it is the present value of the face value of a bond, am I correct?

What is the quoted price of a bond that has 4.5 years until maturity? The face value of the bond is $5,000 and it has a coupon rate of 8.1% compounded semi-annually and a yield rate of 8.6% compounded semi-annually.

Here's what I did:
Using the formula of PV=FV(1 + i)^-n
5000(1 + 0.043)^-9

0.081 divided by 2 is 0.0405, not 0.043.
But that still doesn't give any of your multiple choice answers. As to what formula you should use, I can't answer that. That is finance, not mathematics.

5000(0.068460682)
3,423.03

But given the multiple choice answers I have, I am wrong.
The choices were: 4908.32, 4888.32, 4898.32, 4998.32 or 4809.32

I would appreciate any help/insight. Thanks

 

[Architeuthis Dux]

I am not an expert in finance or economics, but I can provide some information about the quoted price of a bond.

The quoted price of a bond refers to the current market price at which the bond is being traded. It is typically expressed as a percentage of the bond's face value, also known as its par value. For example, if a bond has a face value of $1000 and is currently trading at 90% of its face value, the quoted price would be $900.

The quoted price of a bond may also be referred to as the clean price, as it does not include any accrued interest or fees. This is in contrast to the dirty price, which includes these additional costs.

In the given scenario, the quoted price of the bond would depend on various factors such as the current market conditions, the creditworthiness of the issuer, and the time to maturity. The coupon rate and yield rate also play a role in determining the quoted price.

To calculate the quoted price of the bond, you would need to use the present value formula as you have done. However, the formula you have used does not take into account the semi-annual compounding of the coupon and yield rates. To accurately calculate the quoted price, you would need to use a more complex formula that takes into account the time value of money and the compounding periods.

Without knowing the exact formula used in the multiple choice answers, it is difficult to determine which one is correct. However, it is likely that one of the answers takes into account the semi-annual compounding and the others do not.

In conclusion, the quoted price of a bond is the current market price at which the bond is being traded, expressed as a percentage of its face value. It is not a fixed value and can fluctuate based on various factors. To accurately calculate the quoted price, a more complex formula that considers the time value of money and compounding periods is needed.