Series 27: Computation Of Interest

Computation of Interest

When calculating accrued interest for bonds, interest is accrued from the last interest payment to the day before the regular way settlement date. For cash transactions, interest is accrued from the last payment date to the day before the trade date. Interest must be computed on the basis of a 360-day year, meaning that every calendar month must be considered a 30-day month.

Most corporate bonds pay interest every six months according to the following schedule:

• • January and July (J&J bonds)
• • February and August (F&A bonds)
• • March and September (M&S bonds)
• • April and October (A&O bonds)
• • May and November (M&N bonds)
• • June and December (J&D bonds)

If a trade occurs in the middle of July for an M&N bond, the seller is entitled to the amount of interest accrued during the time he owned the bond since the previous payment in May.

When a security is traded “and interest” (i.