Question

An investor purchased $100,000 face value of a 12% municipal bond that matures december 1, 2041. the transaction settles on august 1. the investor owes accrued interest of:

O $200
O $800
O $2,000
O $8,000

Answer 1

The investor owes accrued interest of $4,065.75.

Step-by-step explanation:

When a bond settles, the investor is responsible for paying the accrued interest, which is the interest that has accumulated since the last coupon payment. To calculate the accrued interest, we need to determine the number of days between the last coupon payment and the settlement date.

In this case, the bond matures on December 1, 2041, and the settlement date is August 1. There are 122 days between these two dates. To calculate the accrued interest, we can use the formula:

Accrued Interest = Face Value x Coupon Rate x (Days/Year)

Accrued Interest = $100,000 x 12% x (122/365)

Accrued Interest = $4,065.75

Therefore, the investor owes accrued interest of $4,065.75.