Series 65: 2.10.3. Accrued Interest

Taken from our Series 65 Online Guide

We have an Audiobook for this text!

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
+ Read More
More Series 65 Info
What are people saying?
Create an Account

Since you're reading about Series 65: 2.10.3. Accrued Interest, you might also be interested in:

Solomon Exam Prep Study Materials for the Series 65
Please Enable Javascript
to view this content!

SUMMARY TABLE

Important