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Calculation of Accrued Interest
To calculate accrued interest:
CD Determine
the
number of months and days between settlement
and
the
last coupon
date.
®
Multiply
the
number of
months
by 30 and add the result to the
number of days.
@
Calculate the accrued interest; use the total number of days
(above)
as
time,
the coupon rate as the
interest,
and the par
value
(in dollars)
as
the
principal.
Example: What is the accrued interest on a 5%
% bond,
having a par
value of $
1000,
and maturing on July 15, 2001? The settlement date
is September 11
,
1971.
Accrued
interest
is for 1 month
,
26 days or a
total of 56 days.
Solution
Enter:
INTR
See Displayed:
5685.75BIOOO •
•
I i I I -
$.
accrued interest
Callable Bonds
Some bonds are redeemed prior to their stated maturity date and
,
in
most cases, an incentive
is
provided for the holder of such bonds. This
incentive is known as a call premium; it is me rely a sum of money to
be paid in the future if the bond is called.
The general procedure for determining a callable value is as follows:
CD Determine bond price as usual.
® Find the present value of the
premium only
over the number of
coupon periods
;
use the effective yield rate
per period
for the
calculation
.
@)
Add the present value of the premium to the
price
of the bond.
Example: Find the value of a 3.25% bond to yield 2.40
%
on assump-
tion of call at 104 in 7
years.
CD Key in 7
(yrs),
press
SAvet
.
® Key in 365
(days
/
yr),
press
X
iii.
@)
Key in 2.4
(yield)
,
press B .
@
Key in3.25
(coupon),
press
I!M!I
.
BOND
. . .
®
Press
•
•
to obtain percentage
price,
(105.45).
@
Press
STO
to store in constant storage location.
61
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