The Alfa Co. has a 12% bond outstanding that pays interest on February 1st and July 1st. Today is March 1st and you are planning to purchase one of these bonds. How much will you pay in accrued interest?
A) $10
B) $20
C) $30
D) $60

Question

Quizplus · Accepted Answer

The bond pays interest semi-annually, so each payment is 6% of the face value. Since it's March 1st, one month has passed since the last interest payment on February 1st. Therefore, you will pay for one month's worth of interest, which is 1/6 of the semi-annual interest payment. If the semi-annual interest is $60 (assuming a $1,000 face value), then 1/6 of that is $10.