Valuation of Bonds between

Coupon Payment Dates

Practical Method

Presented by: Maricris B. Garcia Page 1

 f m
The formula is : Bt + k = Bt + k + Frk ,
or
f
Frk .
m
Bt + k = Bt + k

Where:
m
Bt + k = market price

f
Bt + k = flat price

Frk = accrued coupon

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 Practical Method
It is an approximate method that uses the linear
approximation (1 + ) 1 + for 0 < < 1.

-at price is equal to the price of the bond as at the

last coupon payment date, carried forward with
simple interest.
Btf + k = (1 + )
-accrued coupon is given by:
(1+)1
=Fr( )

Frk = Page 3
-market price is equal to:
m
Bt + k = 1 +

In computing for , we can use the actual

count of days:

or =

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 Example 1
Consider a 1000 par value two-year 8% bond
with semiannual coupons brought to yield 6%
convertible semiannually. The price of the bond is
computed to be 1,037.17. Compute the flat price,
accrued interest, and the market price five months
after the purchase of the bond.

Given:
F = 1000, r = 8%, m = 2,

i = 3% k= , Bt = 1,037.17 Page 5


= = 1000(.04) = 40

Using Practical Method we find:

f
+5 = (1 + )
6

5
= 1,037.17 1 + .03 = 1,063.10
6

5
5 = = 40 = 33.33
6 6

m
+5 = 1 +
6

= 1,063.10 33.33 = 1,029.71

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 Example 2
A 1000 par value with 5 year bond with semi-
annual coupons of 60 is purchased to yield 8%
convertible semi-annually. Two years and two
months after purchase, the bond is sold at the flat
price which maintains the yield over the two years
and two months, Calculate the flat price, accrued
interest, and the market price using practical
method.
Given:
F = 1000, t = 5 yrs., m = 2,

Fr = 60, i = 4% n=10, k= Page 7

The price of the bond after two years is
4 = | +
4 = 60| .04 + 1000 6 = 1,104.84
Using Practical Method we find:
f
4+2 = 4 (1 + )
6

2
= 1,104.84 1 + .04 = 1,119.57
6

2
2 = = 60 = 20
6 6

m
4+2 = 4 1 +
6

= 1, 119.57 20 = 1,099.57
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Thank you

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