Question

need help with this practice question

Calculate the accrued interest on the following transaction. A 7% semi-annual coupon bond maturing April 12, 2028 is purchased with a settlement date of October 16th of this year. The principal amount of the purchase is $100,000. a) $3567.12 Ob) $95.89 O c) $76.71 d) Impossible to calculate since the bond price is not given.

Answer 1

Accrued interest is determined from the day after the last interest payment date up to and including the settlement date.

Interest payments are semi-annual on the anniversary date of maturity (e.g. April 12) and exactly six months later (e.g. October 12).

Accrued interest is calculated as

(Par value x % coupon rate x (# days accrued/365).

Here, the accrued interest = $100,000 x 0.07 x (4 /365) = $ 76.71

The number of days for accrual is:
October 12 to October 16  = 4 days