- CFA Exams
- CFA Level I Exam
- Study Session 14. Fixed Income (1)
- Reading 44. Introduction to Fixed-Income Valuation
- Subject 3. Flat Price, Accrued Interest, and the Full Price

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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

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**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. |