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NISM Certifications · NISM-Series-VI: Depository Operations · Special Services - Debt Instruments and Government Securities

A client holds a 7% Government security with a face value of Rs 10,00,000 and half-yearly coupons. Between two coupon dates he sells it. Which statement about accrued interest in a G-Sec trade is correct?

The buyer pays the seller accrued interest from the last coupon date up to settlement, added to the clean price. This compensates the seller for the part of the coupon earned while holding, since the next coupon goes entirely to the buyer.

  1. AThe buyer pays the seller accrued interest for the period from the last coupon date to settlement, on top of the clean priceCorrect
  2. BThe seller pays the buyer the accrued interest
  3. CNo accrued interest is ever payable
  4. DAccrued interest goes to the depository

Explanation

Since the full coupon is paid to the holder on the coupon date, the buyer compensates the seller for the days the seller held the bond since the last coupon. The invoice amount is therefore clean price plus accrued interest. The seller does not pay the buyer, and the depository gets nothing.

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