When a bond is sold between coupon payment dates, the buyer pays the seller for the _____, which is the prorated share of the upcoming coupon payment.

Question

Quizplus · Accepted Answer

Accrued interest is the interest that has accumulated on the bond since the last coupon payment date. When a bond is sold between coupon payment dates, the buyer must compensate the seller for the accrued interest, which is the prorated share of the upcoming coupon payment. Therefore, the correct choice is A - accrued interest. The other choices are not applicable to this situation: prepaid interest refers to interest paid in advance, bond premium refers to a bond that is trading above par value, bond discount refers to a bond that is trading below par value, and discount alone is too vague to provide a clear explanation.

When a Bond Is Sold Between Coupon Payment Dates, the Buyer