§Coupons are paid
semi-annually. Hence the bond price would increase at the required rate of return between coupon dates.
§On the coupon
payment date, the bond price would drop by
an amount equal to the coupon payment.
§To prevent changes
in the quoted price in the absence of
yield changes, the price quoted excludes the
amount of the accrued coupon.
§Example: An 8%
coupon bond quoted at 96 5/32 on March 31,
1996 would actually require payment of
961.5625 + 0.5(80/2) = $981.5625
