Your client bought a corporate bond at 106 with a 5% coupon. The trade settled on July 15th. The bond pays interest on February 15th & August 15th (interest payment dates). On top of the bond price, how much will your client pay the previous owner of record in accrued interest?

Explanations

It is 5 months of accrued interest from February 15th to July 15th (use 30 days for a month / 360 days in a year for bonds). 5 x 30 = 150 days. 150 days of accrued interest. It is a 5% coupon, so $50 / year in interest payments divided by 360 days = .139. .139 X 150 days of accrued interest = $20.85