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FRM Part I · FRM Exam Part I · Pricing Conventions, Discounting, and Arbitrage

A corporate bond pays a 6% annual coupon in semiannual instalments on a face value of 100 and uses the 30/360 day count. The last coupon date was January 15, and the trade settles on April 15 of the same year. What is the accrued interest per 100 face value?

Accrued interest is 1.50 per 100 face. Under 30/360 the elapsed period is 90 days out of a 180-day semiannual coupon period, so half of the 3.00 semiannual coupon has accrued. Using 90/360 on the semiannual coupon would understate it.

  1. A0.75
  2. B1.00
  3. C1.50Correct
  4. D3.00

Explanation

Under 30/360, January 15 to April 15 is 90 days in a 180-day coupon period. The semiannual coupon is 3, so accrued interest is 3 × 90/180 = 1.50. The 0.75 option wrongly multiplies the semiannual coupon by 90/360, and 3.00 is the full coupon.

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