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

A corporate bond with face value 100 pays a 6% annual coupon semiannually and uses the 30/360 convention. The last coupon date was March 15 and the settlement date is June 20 of the same year. What is the accrued interest per 100 of face value?

Accrued interest is 1.58 per 100. Under 30/360 there are 95 days from March 15 to June 20 out of a 180-day period, and the semiannual coupon is 3.00, so accrued interest is 3.00 x 95/180, or about 1.58.

  1. A1.50
  2. B1.58Correct
  3. C3.17
  4. D0.79

Explanation

Under 30/360, days from March 15 to June 20 = 3 x 30 + 5 = 95. A coupon period has 180 days and the semiannual coupon is 3.00. Accrued interest = 3.00 x 95/180 = 1.583. Using the annual coupon of 6 instead gives 3.17, which is wrong because the fraction applies to the semiannual coupon.

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