Casey just purchased a $1,000 face value bond at an invoice price of $1,288.16.The bond has a coupon rate of 6.2 percent,semiannual interest payments,and the next interest payment occurs one month from today.Of the amount paid for the bond,what was the dollar amount of the accrued interest?

Question

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The accrued interest is calculated based on the time since the last interest payment. Given the bond has semiannual (every six months) interest payments and the next payment is one month away, it means five months of interest have accrued. The annual interest on a $1,000 face value bond at a 6.2% coupon rate is $62 ($1,000 * 6.2%). For five months, the accrued interest is (5/12) * $62 = $25.83.

Casey Just Purchased a $1,000 Face Value Bond at an Invoice