Accrued interest must be paid annually on a 7% coupon paying €1,000 par bond bought between interest dates.On January 1st you bought a bond issues by the Hardy Can Company.with interest dates of April 15th and September 15th.Approximately how much of the amount you paid for the bond was accrued interest?

Question

Quizplus · Accepted Answer

The bond was bought on January 1st and the next interest payment date is April 15th. Therefore, the buyer is entitled to the interest accrued from January 1st to April 15th.

The time between January 1st and April 15th is 105 days (31 days in January, 28 days in February, and 46 days in March/April).

Using the formula:

Accrued Interest = (C × r × t) / n

where C is the bond's par value, r is the annual coupon rate, t is the time between coupon payments, and n is the number of coupon payments per year.

Accrued Interest = (1000 × 0.07 × 105) / 360 = €20.42

Therefore, choice B is the correct answer.

Accrued Interest Must Be Paid Annually on a 7% Coupon