Corporate Bond Accrued Interest Calculation

What is the accrued interest on a $1000 par value corporate bond with a 12% coupon rate making semiannual payments?

The bond last paid a coupon on February 15, 2030 and is due to pay its next coupon on August 15, 2030.

Accrued Interest Calculation

The accrued interest on this bond is $8.54.

To calculate the accrued interest on this bond, we need to determine the number of days between the last coupon payment date and the settlement date. The settlement date is the date on which the bond is purchased.

Given that the bond last paid a coupon on February 15, 2030, and we are purchasing it on March 13, 2030, we need to calculate the number of days between these two dates. Using the standard day-count convention for corporate bonds, we count the actual number of days between the two dates, excluding the start date and including the end date. In this case, there are 26 days between February 15, 2030, and March 13, 2030.

Next, we need to calculate the accrued interest per day. Since the bond has a 12% coupon rate and makes semiannual payments, the annual coupon payment is $1000 * 12% = $120. Dividing the annual coupon payment by the number of days in a year (365 in this case, as 2030 is not a leap year), we get the accrued interest per day: $120 / 365 = $0.3288.

Finally, we calculate the accrued interest by multiplying the accrued interest per day by the number of days between the last coupon payment date and the settlement date: $0.3288 * 26 = $8.54 (rounded to two decimal places).

Accrued interest is an important concept in bond investing as it represents the owed interest on the bond from the last coupon payment date to the settlement date. Understanding how to calculate accrued interest can help investors make informed decisions about buying and selling bonds.