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. 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.
  2. Term

    Explaining Accrued Liability

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

    What is Accrued Income?

    In a mutual fund, accrued income is earnings that have accumulated over the year, but have not yet been paid out to shareholders.
  4. Personal Finance

    Simple Interest Loans: Do They Exist?

    Yes, they do. Here is what they are – and how to use them to your advantage.
  5. 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.
  6. Bonds & Fixed Income

    What is a Dirty Price?

    The dirty price of a bond includes the present value of all future cash flows.
  7. Investing Basics

    Investing $100 a Month in Stocks for 20 Years

    Learn how a monthly investment of just $100 can help build a future nest egg using properly diversified stocks or stock mutual funds.
  8. Budgeting

    Delayed Interest: Buy More, Pay Much More Later

    Find out the real cost of buying on a delayed interest plan.
  9. Active Trading Fundamentals

    A Guide To Day Trading On Margin

    Buying on margin is a good option if you don't have the cash to day trade.
  10. Options & Futures

    Introduction - Day Traders

    In this tutorial, we will examine the very short-term trading style known as day trading. In particular, we will show how the trader can create a winning combination by using particular strategies ...
RELATED TERMS
  1. Accrued Interest

    1. A term used to describe an accrual accounting method when ...
  2. Accrued Liability

    An accounting term for an expense that a business has incurred ...
  3. Dated Date

    The date at which interest begins to accrue on a fixed-income ...
  4. Accrued Income

    Income that is earned in a fund or by company by providing a ...
  5. Accrued Benefits

    Coverage earned by an employee on a pension plan, based on years ...
  6. Accrued Revenue

    An asset class for goods or services that have been sold or completed ...
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 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 >>
  3. What does it mean when interest "accrues daily?"

    Find out what it means when an interest-bearing account accrues interest daily and how different compounding periods change ... Read Answer >>
  4. What does it mean to capitalize accrued interest?

    Understand what it means when a company capitalizes accrued interest. Learn what constitutes accrued interest and what constitutes ... Read Answer >>
  5. What is the advantage of calculating accrued expenses over prepaid expenses?

    Learn about accrued expenses and prepaid expenses, the difference between accrued and prepaid, and advantages of accrued ... Read Answer >>
  6. How is accrued revenue accounted for in bookkeeping?

    Understand how accrued revenue is accounted for on a company's financial statements. Learn through a specific example of ... Read Answer >>
Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center