A bondholder who purchases a bond on December 1 would receive one-sixth of the December 31 interest payment.

Question

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Interest on bonds is typically paid semi-annually, and the interest a bondholder is entitled to starts accruing from the settlement date, not the transaction date. If a bondholder purchases a bond on December 1, they would not be entitled to one-sixth of the December 31 interest payment unless the bond specifically accrues interest on a daily basis and the terms of the bond stipulate that the new bondholder is entitled to the interest accrued from the purchase date. Most bonds, however, accrue interest up to the settlement date, which is then paid to the seller of the bond, and the new bondholder starts accruing interest from the settlement date forward.

A Bondholder Who Purchases a Bond on December 1 Would