Brokerage Office Procedure - Accrued Interest For Government Notes And Bonds

The calculation for accrued interest on US government securities uses an actual calendar year and each month contains the actual number of days. Keep in mind that interest accrues up to, but not including, settlement date and, because US government securities settle on the next business day, interest accrues only up to the trade date.

Example:

An investor purchases 10M 8% US Treasury bonds due January 1st 2030 on Monday

April 1st for regular way settlement. How much accrued interest will the investor owe?

(10,000 x 8%) X (91 /365) =

800 X .2493 = $199.44

To determine the number of days in the above calculation we used the actual calendar days in each month as follows:

January

31 days

February

28 days

March

31 days

April

1 day

Total

91 days

If the trade had been executed on Friday April 1st the calculation would look like this:

(10,000 x 8%) X (93 /365) =

800 X .2547 = $203.83

Interest continues to accrue on weekends even though weekends are not good settlement dates.

January

30 days

February

30 days

March

30 days

April

3 days

Total

93 days

Series 62 Test Prep

Rules For Good Delivery


Related Articles
  1. Professionals

    Accrued Interest

    Most bonds pay interest semi-annually, based on their maturity date. An investor who wishes to sell a bond between the interest payment dates will be owed the interest that has become due or ...
  2. Investing

    What's Accrued Interest?

    Accrued interest has two meanings. In accounting, it is interest that has been earned, but the time for payment has not yet occurred.
  3. Professionals

    Accrued Interest

    FINRA Series 7 Online Study Guide Section 4 Debt Securities
  4. Professionals

    D. Accrued Interest

    Accrued Interest Most bonds pay interest semi-annually, based on their maturity date. An investor who wishes to sell a bond between the interest payment dates will be owed the interest that has ...
  5. Term

    Explaining Accrued Liability

    Accrued liability is an accounting term for an expense a business has incurred but has yet to pay.
  6. Investing Basics

    What is a Settlement Date?

    A settlement date is the day a security trade must be settled.
  7. Professionals

    Technical Analysis

    Technical Analysis
  8. Professionals

    Answers

    Answers
  9. Professionals

    Premiums Price Based Options Treasury Notes And Bonds

    Treasury notes and bonds are priced as a percentage of par down to 32nds of 1 percent. Price based options are also quoted as a percentage of par down to 32nds of 1 percent. Example: A May Treasury ...
  10. Personal Finance

    Dissecting the Simple Interest Formula

    Simple interest ignores the effect of compounding: it's only calculated on the principal amount. This makes it easier to calculate than compound interest.
RELATED TERMS
  1. Accrued Interest

    1. A term used to describe an accrual accounting method when ...
  2. Flat Bond

    A debt instrument that is sold or traded without accrued interest, ...
  3. Accrue

    The ability for something to accumulate over time. In finance, ...
  4. Accrued Interest Adjustment

    The extra amount of interest that is paid to the owner of a convertible ...
  5. Accrued Liability

    An accounting term for an expense that a business has incurred ...
  6. Accrued Income

    Income that is earned in a fund or by company by providing a ...
RELATED FAQS
  1. How do you find accrued interest on a bond?

    Learn how to determine the accrued interest on a bond. The price in the secondary market reflects the accrued interest the ... Read Answer >>
  2. What is the difference between accrued expense and accrued interest?

    Learn the difference between accrued expense and accrued interest, and find out how to calculate accrued interest on a short-term ... Read Answer >>
  3. What is the difference between accrued revenue and accrued interest?

    Find out about the difference between accrued revenue and accrued interest and how both of these concepts are used by businesses ... Read Answer >>
  4. A customer sells a 6% corporate bond on Tuesday October 4th for regular settlement ...

    Free info on financial certification exams including study guides, exam questions, and much more! Read Answer >>
  5. How is an accrued interest entry made in accounting?

    Learn how to create common journal entries for accrued interest, including adjusting entries and delayed bond issues sold ... Read Answer >>
  6. How do you record adjustments for accrued revenue?

    Understand what accrued revenue is and what it's used to measure. Learn how an accountant would record an adjustment to accrued ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. 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 ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center