Question

Suppose that a Treasury coupon security is purchased on April 8 and that the last coupon payment was on February 15. Assume that the year in which this security is purchased is not a leap year.

(a) How many days are in the accrued interest period?
(b) If the coupon rate for this Treasury security is 7% and the par value of the issue purchased is $1 million, what is the accrued interest?

Answer 1

A. 52 days

B. $1.00

Step-by-step explanation:

A. Calculation to determine How many days are in the accrued interest period

February 15 to February 28 14 days

March (31 days in March) 31 days

April 1 to April 8 7 days

Actual number of days 52 days

(14 days+ 31 days+7 days)

Therefore The number of days that are in the accrued interest period is 52 days

B. Calculation to determine the accrued interest

Using this formula

Accrued interest=(Annual Dollar Coupon/2)x (Days in Accrued interest /Days in Coupon)

Let plug in the formula

Accrued interest=($7/2)x (52 days /182 days)

Accrued interest= $1.00

Note that February 15 through August 15 will give us 182 days in a coupon period

Therefore The Accrued interest is $1.00