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XYZ DebenturesIssue Date: 8-1-XXPayment Dates: J 1 & J 1Maturity Date: 7-1-XXSome years after issuance, a customer buys 10 debentures in a regular way trade on Thursday, October 12th. The customer will owe the seller:________A. 103 days of accrued interestB. 105 days of accrued interestC. 106 days of accrued interestD. 107 days of accrued interest

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Answer:

B. 105 days of accrued interest

Step-by-step explanation:

The purchase on Thursday, October 12th will settle on Monday, October 16th - 2 business days after trade date.

Accrued interest on corporate bonds is based on a 30days per month/360 day year.

And interest starts accruing from the day of the last interest payment, up to, but not including, settlement.

See below for day calculation

July 30 days

August 30 days

September 30 days

October 15 days (up to but excluding settlement)

Total 105 days

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