8006 Exam Dumps : Exam I: Finance Theory Financial Instruments Financial Markets - 2015 Edition

The all in price would be equal to the clean price plus accrued interest. The accrued interest for the 60 days that have passed since the last coupon payment is $5 x 60/360 = $0.83. Therefore the dirty price, or the all in price, will be $98.83. (Note that the $5 is the annual 5% coupon on the $100 face.)

A swaption is an option to enter into a fixed for floating interest rate swap at a point in the future, with the fixed rate decided upfront. These options can be European, Bermudan or American, in terms of what dates the option can be exercised. A receiver option on a swap is an option that gives the buyer the right to enter into a swap and receive the fixed rate and pay the variable rate. In the case of a payer option, the buyer pays the fixed rate and receives the variable rate. One way to remember this is that receiving and paying are terms used with reference to the fixed rates.

As a bond approaches maturity, its value will be driven less by the time value of money or its coupons, and more by its redemption value, ie the par. Therefore as maturity approaches, its value converges to its par value and this phenomenon is called pull to par.