| Course | MT483 Investments |
|---|---|
| Unit | Unit 7 |
| Paper type | Bond pricing exercise |
| Length | About 990 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Business Administration |
| Updated | October 2026 |
Free sample paper for MT483 Unit 7
From Quoted Price to After-Tax Yield: An MT483 Unit 7 Bond Pricing Exercise on One Corporate Note
[Student Name]
Purdue University Global
MT483: Investments
Unit 7 Bond Pricing Exercise
[Instructor Name]
[Date]
The note, its issuer, the dealer's markup and the investor's tax rates are composite; the Treasury yield is a bracketed placeholder; the sources cited are real.
Part One: The Clean Price
Kevin's note matures in seven years and pays $25 of interest every six months on each $1,000 of principal, so fourteen interest payments remain. The market yield for notes of similar quality and maturity is 5.60 percent a year, or 2.80 percent per half-year. Each of the fourteen $25 payments and the final $1,000 is discounted at 2.80 percent per half-year, and the sum is the note's value. The fourteen coupons are worth about $286.29, the $1,000 principal repaid in period fourteen is worth about $679.35, and the total is $965.65.
Kevin's note trades under $1,000 since its $50 of yearly interest is less than the 5.60 percent buyers now require, and the $34.35 discount pays back that shortfall by maturity. Fifty dollars of yearly interest on a $965.65 price gives a current yield of 5.18 percent. That figure ignores the $34.35 the buyer gains when the note matures at par, which is why the yield to maturity, 5.60 percent, is the better measure. Discounting semiannually matters: discounting the same payments annually at 5.60 percent gives a slightly different price, an error that tends to appear in exercises when the coupon schedule is overlooked.
Part Two: Interest Owed to the Seller
Bonds are quoted at their clean price, without interest earned since the last coupon, but they settle at the dirty price, with it. Kevin Brooks, a composite investor, buys twenty notes 72 days after the last coupon date. Corporate notes count days on a 30/360 basis, so the half-year has 180 days and the accrued interest is $25 times 72 over 180, or $10.00 per note. The invoice for twenty notes is twenty times $975.65, or $19,512.90.
Accrued interest is not a cost; the buyer pays it now and receives the whole $25 coupon on the next payment date.
Kevin's confirmation shows two figures that confuse many first-time buyers: a quoted price of 96.565 per hundred and a total charge higher than twenty times that price. The difference is the $200 of accrued interest across the twenty notes, which comes back to him in 108 days with the next coupon.
Part Three: Three-Quarters of a Point
Individual investors rarely buy at the market price a dealer would pay another dealer. Suppose the dealer marks the note up by three-quarters of a point, $7.50 per note, so Kevin pays a clean price of $973.15. Solving for the yield that makes the note's payments worth $973.15 gives about 5.47 percent. The markup looks small next to the price, but it lowers Kevin's yield by about 13 basis points every year for seven years. Harris and Piwowar (2006) and Edwards et al. (2007) found that trading costs in the municipal and corporate bond markets were far higher for small trades than for large ones, which is the pattern Kevin's purchase illustrates. Broker confirmations for many retail trades must now disclose the markup, which lets an investor convert it into yield as this part does.
Part Four: A Point Either Way
Weighting each payment date by the share of today's $965.65 that the payment represents gives Macaulay duration. For this note it is 5.97 years. Dividing 5.97 by 1.028, one plus the half-year yield, gives a modified duration of 5.81, which approximates how many percent the note's value moves when its yield shifts by a full point. A rise from 5.60 to 6.60 percent should lower the price by about 5.81 percent, and a fall to 4.60 percent should raise it by the same amount.
Full repricing tests the estimate. At 6.60 percent the note is worth $911.45, a fall of 5.61 percent. At 4.60 percent it is worth $1,023.71, a rise of 6.01 percent. The estimate is close in both directions but slightly overstates the loss and understates the gain. Convexity explains the gap. Plotted against yield, the note's value follows a curve rather than a straight line, so a one point drop in yield adds more dollars than a one point climb takes away. Bodie et al. (2024) treat duration as a linear estimate that grows less accurate as the rate change gets larger, and the two repricings put that error at about 0.2 points either way for this note.
Part Five: After Both Tax Bills
Kevin's interest is taxable. Assuming a 22 percent federal rate and a 5 percent state rate, the corporate note's 5.47 percent yield after the markup keeps about 3.99 percent after tax, since 73 cents of each dollar of interest remain. A seven-year Treasury note yielding a bracketed [4.60] percent pays interest that is exempt from state income tax, so it keeps 78 cents of each dollar, or about 3.59 percent.
The corporate note still yields more after both taxes, by about 0.40 points. That extra yield is payment for credit risk, the chance the issuer cannot pay, and for weaker liquidity, since selling a single corporate note before maturity could cost another markdown. The comparison is also sensitive to the investor's state: in a state without income tax the Treasury's advantage disappears and the corporate note's lead widens.
What the Exercise Shows
The quoted yield of 5.60 percent is not what Kevin earns. The markup lowers it, taxes lower it further, and the comparison with a Treasury depends on which taxes apply. The duration figures describe a risk he carries whether or not he sells: if yields rise by a point, his notes lose about $54 each in market value, a loss he avoids only by holding them to maturity and accepting below-market income in the meantime.
References
Bodie, Z., Kane, A., & Marcus, A. J. (2024). Investments (13th ed.). McGraw Hill.
Edwards, A. K., Harris, L. E., & Piwowar, M. S. (2007). Corporate bond market transaction costs and transparency. The Journal of Finance, 62(3), 1421-1451. https://doi.org/10.1111/j.1540-6261.2007.01240.x
Harris, L. E., & Piwowar, M. S. (2006). Secondary trading costs in the municipal bond market. The Journal of Finance, 61(3), 1361-1397. https://doi.org/10.1111/j.1540-6261.2006.00875.x
MT483 Unit 7 instructions, in plain terms
The seventh MT483 unit frequently gives you a bond and asks for its price and its sensitivity to a change in rates. Price it as the present value of coupons and principal, using semiannual periods when the coupon is paid twice a year. Many prompts also want the invoice amount, so compute accrued interest with the stated day count and add it to the clean price. If a dealer markup or commission is involved, solve for the yield at the price paid rather than treating the charge as a separate fee. Report Macaulay and modified duration, then test the estimate by repricing for a rise and a fall in yields. Compare after-tax yields where the prompt involves an individual, labeling the tax rates as assumptions and noting which interest is exempt from state tax.
Inside the MT483 Unit 7 example
Five parts follow the order a buyer meets each number. The clean price splits into about $286.29 of coupons and $679.35 of principal, and a short passage explains why the note trades below par. Accrued interest comes next, with a highlighted line that it returns on the next coupon date and a note on reading the confirmation. The markup part solves the yield at $973.15 and cites Harris and Piwowar and Edwards and colleagues on high costs for small bond trades. Duration of 5.97 and 5.81 years is tested by full repricing to $911.45 and $1,023.71, showing a 5.61 percent fall against a 6.01 percent rise. The tax part keeps 73 cents of each corporate interest dollar against 78 for the Treasury, and the close puts a one point rise at about $54 a note.
Where the points sit in the MT483 Unit 7 rubric
A correct clean price with semiannual discounting carries the first block of points, and annual discounting of a semiannual coupon is the slip graders see most. Credit then moves to what the investor actually pays: accrued interest computed with the right day count and carried into the invoice. Markups earn marks only when converted into yield, since a dollar charge on its own hides how long it lasts. Duration figures need a check against repricing, and the asymmetry between rising and falling prices should be explained rather than ignored. After-tax comparisons are assessed for correct treatment of state taxes on Treasury and corporate interest, with assumed rates labeled. Each part should end in a sentence that tells the buyer what the number means, and citations follow APA style.
MT483 Unit 7 help: mistakes that cost points
Exercises often stop at the clean price and never reach the amount on the confirmation. Others compute accrued interest with actual days when the bond uses 30/360, or the reverse. The markup tends to vanish entirely, or appears as a fee subtracted once, which understates its effect on a seven year holding. Duration is sometimes reported with no test against repricing, so the convexity error goes unnoticed. In tax comparisons, students regularly tax Treasury interest at the state rate, which reverses the advantage. Before submitting, check that the price falls below par when the yield exceeds the coupon, recompute accrued interest from the day count, and confirm the repriced gain at the lower yield is larger than the loss at the higher one.
Get an MT483 Unit 7 example written to your instructions
Unit 7 prompts may supply a coupon, maturity and yield, or a quoted price to solve backward from. Pass along whichever yours gives, rubric included, and a first MT483 exercise comes back at no cost within 24-48h: price, accrued interest, sensitivity and after-tax yield each worked in full, with conventions stated. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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MT483 Unit 7 questions, answered
Why does the invoice price differ from the quoted price?
Bonds are quoted clean, without accrued interest, and settled dirty, with it. The buyer compensates the seller for interest earned since the last coupon date and receives the full coupon on the next payment. Showing both figures, and the day count used, is what graders expect when a prompt mentions settlement or purchase cost.
How do I find the markup on a bond purchase?
For many trades, broker confirmations must disclose the markup or markdown, and FINRA's TRACE data shows recent trade prices for comparison. In an exercise the markup is usually given or assumed. Convert it into yield by solving for the rate at the price paid, since a markup stated in points understates its effect over the bond's life.
Should the exercise compare the note with a bond fund?
If the prompt asks, briefly. An individual note returns its principal at maturity if the issuer pays, while a bond fund has no maturity and its price moves with rates indefinitely. Both carry rate risk; they differ in how it reaches the investor. A short paragraph on that difference strengthens the sensitivity section.
Where can I find a free MT483 Unit 7 sample paper?
This page contains the complete MT483 Unit 7 exercise pricing a composite corporate note, adding accrued interest and a markup, testing duration and comparing after-tax yields.
Why does the price rise more than it falls in the MT483 Unit 7 sample?
Bond prices are convex in yield, so a one point fall to 4.60 percent adds 6.01 percent while a one point rise to 6.60 percent removes only 5.61 percent.