Clean Price Calculation for 6% US Treasury Bond | CFA Level 1 Exam Prep

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To determine the clean price of a bond, we need to understand a few key concepts: the dirty price, accrued interest, and the clean price.

1. Dirty Price: The dirty price is the quoted price of a bond that includes both the present value of the remaining cash flows and the accrued interest.

2. Accrued Interest: Accrued interest is the interest that has accumulated on a bond since the last coupon payment date. In this case, the last coupon payment date was March 31, and we need to calculate the accrued interest from that date to July 1.

To calculate the accrued interest, we need to determine the number of days between the last coupon payment date and the settlement date (July 1). Here's the calculation:

Days between March 31 and July 1: 92 days

Next, we need to determine the number of days in the coupon period. In this case, the coupon period is from March 31 to September 30, which is 6 months or 182 days.

Now, we can calculate the accrued interest using the following formula:

Accrued Interest = (Coupon Rate * Face Value) * (Days between last coupon date and settlement date) / (Days in the coupon period)

In this case, the coupon rate is 6%, and the face value is not mentioned, so we'll assume it's $100 (to simplify calculations):

Accrued Interest = (0.06 * $100) * (92 / 182) = $3

3. Clean Price: The clean price is the quoted price of a bond without the accrued interest. It represents the actual price that the buyer pays to purchase the bond.

To calculate the clean price, we subtract the accrued interest from the dirty price. In this case, the dirty price is given as 97.625:

Clean Price = Dirty Price - Accrued Interest = 97.625 - $3 = $94.625

The clean price of the bond on July 1 is closest to option C: $946.41.

Please note that the bond's face value was assumed to be $100 for simplification purposes, but in practice, the face value may differ.