Question

that must be paid to the previous ownei is deteimined by a suaight-line interpolation based on days Specifically, the accjued interest (Al) is numbei ot duys since last coupon Al number of days x coupon amount in cutrent coupon petiod Example 3.5 (Accrued interest calculation) Suppose we purchase on May 8 a U.S Treasury bond tha marures on August 15 in some distant yeat The coupon rate is 9% Coupon payments are made every Febtuary 15 and August 15 The acciued interest is computed by noting that theie have been 83 days since the last coupon (in a leap yeat) and 99 days until the next coupon payment Hence, 83 Al = x 4 50 205 83+99 This 2 05 would be added to the quoted pice, expiessed as a percentage of the face value. Fot example, $20 50 would be added to the bond it its face value weie $1,000 Quality Ratings Creative

please tell me how is 450 coming as a coupon amount and why in number of days in current period we added 83 and 99 help me

Answer 1

45.0 is the coupon payment :

coupon payment = face value *stated rate*6/12..........(since payments are made once in 6 months).

here,

face value is given as 1000.

so,

coupon payment =$1000*9%*6/12

=>$45.0.

total number of days in a period = number of days since last interest payment + number of days to next payment

=>83+99

=>182.

number of days expired is important to know the amount of interest accruing on the date of sale of bond, so that this amount can be added to the face value of the bond so that dirty price of the bond can be known.

In this case $20.50 is interest accrued till 83 days, this amount shall be added to the face value of $1000 so that the sale price of the bond is $1000+20.50 =>$1,020.50.