Q:
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

A:

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.


RELATED FAQS

  1. Do I own a stock as of the trade date or the settlement date?

    When it comes to buying shares, there are two key dates involved in the transaction. The first date is the trade date, which ...
RELATED TERMS
  1. Flat Bond

    A debt instrument that is sold or traded without accrued interest, ...
  2. Settlement Date

    1. The date by which an executed security trade must be settled. ...
  3. Rolling Settlement

    The process of settling security trades on successive dates so ...
  4. Trade Date

    The month, day and year that an order is executed in the market. ...
  5. T+1 (T+2,T+3)

    Abbreviations that refer to the settlement date of security transactions. ...
  6. Dated Date

    The date at which interest begins to accrue on a fixed-income ...
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
  5. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  6. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
Trading Center