CFA Practice Question

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CFA Practice Question

The cum-coupon transaction price is 125-3/16 for a semi-annual pay, 8 5/8% coupon bond. Two months have elapsed since the last coupon payment. What is the accrued interest for $2,000,000 par value of this bond?
A. $57,500
B. $28,750
C. $14,375
Explanation: Accrued interest = (2/6) x (1/2) x (8-5/8%) x $2,000,000 = $28,750

User Contributed Comments 4

User Comment
jgraham6 where does the 1/2 come from?
natexchang semi annual
gill15 Why is the coupon being accumulated at the coupon rate of for accrued interest? Dont we need the interest rate.

The question says nothing about the bond initially trading at par. It says the par value is 2M but that doesnt means its trading at Par. Confused.
jgoodge The interest rate we need to calculate accrued interest it the coupon rate. It is not asking to calculate the full (dirty) px, which we would need the discount rate. To calculate accrued interest, you just need the (coupon rate x face of bond) = annual interest then divide by 2 to calculate semi annual coupon (interest) payments. Then calculate how much is accrued (2 months) out of 6.
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