Question of the Week

A customer sells a 6% corporate bond on Tuesday October 4th for regular settlement. The bond pays interest on July 1st and January 1st. How many days of accrued interest is this customer owed?

A) 98
B) 97
C) 96
D) 57


Answer:

The correct answer is c) 96

Accrued interest is the interest that is due to the seller of a bond since the last day they were paid. Corporate bonds pay interest on a 30 day month/360 day year basis. They also settle on the 3rd business day following the trade date (T+3). The trade settles on Friday October 7th. The last pay date was July 1st. The customer is owed 30 days for July, 30 days for August , 30 days for September and 6 days for October. You do not include the settlement date of the 7th.

© 2004 American Investment Training, Inc.