Explanation:
US Treasury Bonds use the Actual/Actual day count convention.
Days from March 5 to May 27 (actual days): March (26) + April (30) + May (27) = 83 days.
Total days in the coupon period from March 5 to September 5 (actual days): March (26) + April (30) + May (31) + June (30) + July (31) + August (31) + September (5) = 184 days.
Treasury accrued interest = (83 / 184) * (5% * 100 / 2) = (83 / 184) * 2.50 = $1.1277 ≈ $1.128.
Corporate Bonds use the 30/360 day count convention.
Days from March 5 to May 27 (30/360): (30 - 5) + 30 + 27 = 25 + 30 + 27 = 82 days (or using the formula: 3600 + 30(5-3) + (27-5) = 60 + 22 = 82 days).
Total days in a semi-annual period is 180 days.
Corporate accrued interest = (82 / 180) * (6% * 100 / 2) = (82 / 180) * 3.00 = $1.3666 ≈ $1.367.
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Q.22 You have been given the following details for two bonds:
| US Treasury Bond | Corporate Bond | |
|---|---|---|
| Principal | $100 | $100 |
| Coupon | 5% | 6% |
If coupons are paid on March 5 and September 5 of each year for both bonds, what is the interest accrued on both bonds between the period of March 5, 2017, and May 27, 2017?
A
$1.128 on the Treasury Bond and $1.353 on the Corporate Bond.
B
$1.128 on the Treasury Bond and $1.367 on the Corporate Bond.
C
$1.139 on the Treasury Bond and $1.353 on the Corporate Bond.
D
$1.139 on the Treasury Bond and $1.367 on the Corporate Bond.
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