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

Which day count convention is used to calculate accrued interest on US Treasury notes and bonds?

US Treasury notes and bonds use the actual/actual day count. Accrued interest is based on the actual days since the last coupon divided by the actual days in the current coupon period. The 30/360 convention applies mainly to corporate bonds, and actual/360 to money market instruments.

  1. A30/360
  2. BActual/ActualCorrect
  3. CActual/360
  4. DActual/365 fixed with no adjustment for leap years

Explanation

US Treasury notes and bonds accrue interest on an actual/actual basis, using the actual days elapsed and the actual days in the coupon period. 30/360 is the corporate and agency convention, and actual/360 is a money market convention used for instruments such as T-bills' discount yield and LIBOR-style loans.

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