Series 65: 2.10.3. Accrued Interest

Taken from our Series 65 Online Guide

2.10.3. Accrued Interest

Most bonds trade “and interest,” which means their stated price includes any interest that has accrued on the bond from the time interest was last paid until the day before the settlement date. Most bonds pay interest every six months.

Accrued interest is added to the amount on the buyer’s sales confirmation because the buyer must pay the price of the security plus the added interest. Accrued interest is also added to the amount on the seller’s confirmation, because he receives the price of the security plus the accrued interest.

When calculating interest, a 30-day month and 360-day year are assumed for many but not all types of bonds. For example, a Treasury bond assumes the actual days of the month and the actual days in the year. The following table will help you when figuring accrued interest.

Bond Settlement and Accrual Conventions
	Regular Way Settlement	Day Count Convention (month / year)
Corporate bonds	T + 2	30/360
MBSs, CMOs, CDOs*	T + 2	30/360
Municipal bonds	T + 2	30/360
Treasury bills	T + 1	Actual/360
Treasury bonds and notes	T + 1	Actual/Actual
*MBS = mortgage-backed securities; CMO = collateralized mortgage obligation; CDO = collateralized debt obligation

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