Accrued Interest

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Chapters in this video

  1. 0:00 Carla's bond and the make-whole mechanism
  2. 2:00 30/360 vs actual/actual day-count showdown
  3. 3:55 Calculating $15 of accrued interest step by step
  4. 5:04 Bonds that trade flat: default, income, zero-coupon
  5. 5:43 Zero-coupon settlement vs OID tax trap
  6. 6:11 Rapid-fire exam recap

What this video covers

  • Why the buyer pays accrued interest at settlement and how the next full coupon makes both parties whole
  • The day-count convention for corporate and municipal bonds (30/360) versus U.S. government bonds (actual/actual)
  • How to plug numbers into the accrued interest formula: (annual coupon ÷ periods per year) x (days since last coupon ÷ days in period)
  • Why a semiannual corporate bond with a $60 annual coupon and 90 days of accrual produces exactly $15 of accrued interest
  • The three categories of bonds that trade flat: bonds in default, income (adjustment) bonds, and zero-coupon bonds
  • The classic exam trap on zero-coupon bonds: flat at settlement, but original issue discount (OID) is still taxed annually
  • How to spot the wrong-day-count distractor answer the test writers plant in the choices

Read the full lesson, free

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Read the Free Lesson → free · no signup wall