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FRM Part I · FRM Exam Part I · Bond Yields and Return Calculations

A US Treasury bond with face value USD 100,000 pays a 4% annual coupon semiannually on January 15 and July 15. Settlement is March 31 of a non-leap year. Using the actual/actual convention, the accrued interest is closest to:

Accrued interest is USD 828.73. The semiannual coupon is USD 2,000, 75 days have elapsed since January 15, and the coupon period has 181 days, so accrued interest is 2,000 times 75/181. Using 30/360 would give 833.33, which is not the Treasury convention.

  1. AUSD 821.92
  2. BUSD 828.73Correct
  3. CUSD 833.33
  4. DUSD 1,657.46

Explanation

The semiannual coupon is USD 2,000. Days from Jan 15 to Mar 31 = 16+28+31 = 75 days (Jan 15 to Jan 31 is 16 days). The coupon period Jan 15 to Jul 15 has 181 days. Accrued = 2,000 x 75/181 = USD 828.73. The 833.33 figure wrongly uses 30/360 (75/180).

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