Accrued interest must be paid on a coupon paying bond bought between interest dates. On January 1^st you bought a bond issues by the Hardy Can Co. with interest dates of April and September 15^th. Approximately how much of the amount you paid for the bond was accrued interest?

Question

Quizplus · Accepted Answer

The bond pays interest semi-annually on April 15 and September 15. When buying the bond on January 1, you owe the seller accrued interest from September 15 to January 1, which is approximately 3.5 months. Assuming a 6-month interest period, the accrued interest is approximately half of the semi-annual interest payment, which is $20.42.

Accrued Interest Must Be Paid on a Coupon Paying Bond