Series 27: Trading Cum Interest

Trading Cum Interest

Suppose an issuer announces a payment date of August 31 and a record date of August 15 on a bond that you decide to purchase on August 1. The bond has a coupon rate of 12%, so the interest payment is $60 every six months. You buy the bond well before the ex-interest date, which is two business days before the record date, so on the record date you will surely be the owner of record. When the issuer makes its periodic payment on August 31, the check will be written in your name.

Since you paid the dirty price for the bond, which includes the accrued interest up to the day before the settlement date, the previous owner receives the five months of int