On July 1,2012,you purchase a $10,000 par T-note that matures in five years. The coupon rate is 8 percent and the price quote is 98-6. The last coupon payment was May 1,2012,and the next payment is November 1,2012 (184 days total). The accrued interest is

Question

Quizplus · Accepted Answer

The accrued interest is calculated based on the coupon rate, the par value, and the number of days since the last coupon payment. The annual coupon payment is 8% of $10,000, which equals $800. Since the last payment was on May 1 and the purchase date is July 1, there are 61 days of accrued interest (from May 1 to July 1). The total number of days in the coupon period (May 1 to November 1) is 184 days. Therefore, the accrued interest is ($800/184) * 61 = $266.30. However, the price quote of 98-6 (or 98.1875% when converted) indicates the note was purchased at a discount, which affects the calculation. The correct calculation directly for accrued interest without considering the discount in the price quote directly is ($800/365) * 61 = $133.15, rounding differences can occur, but the principle remains that the accrued interest is calculated from the annual coupon payment, prorated by the number of days since the last coupon payment. Given the options, the closest to the correct calculation based on the provided method is $132.61.

On July 1,2012,you Purchase a $10,000 Par T-Note That Matures