Series 7 Exam Question 167: Answer and Explanation

Question: 167

On Wednesday, March 16, one of your customers purchases ten 6 percent Treasury bonds maturing in 2030. If the bonds pay interest on January 1 and July 1, how many days of accrued interest are added to the purchaser's price?

• A. 75
• B. 76
• C. 79
• D. 80

Correct Answer: A

Explanation:

A. You have to remember that accrued interest on U.S. government bonds is calculated in actual days instead of 30-day months like corporate and municipal bonds. U.S. government bonds settle in one business day from the trade date, so the settlement date is March 17 (3/17). Next, you need to subtract the previous coupon date, which is January 1 (1/1), from the settlement date.

3/17	January +1
1/1	February -2
2 months 16 days	-1
× 30
60 + 16 = 76 - 1 = 75 days

Next, multiply the 2 months by 30 days to get a total of 60 days. Then add the 16 days you get after subtracting 1 day from 17 days and you have a total of 76 days (60 + 16). Because U.S. government bonds are calculated in actual days, you need to add an extra day for January (31 days in January) and subtract 2 days for February (28 days in February). After subtracting the 1 from 76, you get an answer of 75 days. Note: Don't add or subtract days for the settlement month (in this case March) because you didn't go through the end of the month.