Accrued Interest Calculations – Series 7 Exam

🟦 Accrued Interest Calculations – Series 7 Exam
Understand how interest accrues—and how it’s handled in bond trades.

The Series 7 exam often tests your ability to calculate accrued interest on bond trades. This is critical for understanding how buyers and sellers of bonds are compensated for interest earned between coupon payments.

Here’s a complete breakdown of what you need to know:

📌 What Is Accrued Interest?

When a bond is sold between interest payment dates, the buyer owes the seller the interest that has accrued from the last payment date to the settlement date. This amount is added to the purchase price of the bond.

✅ The bondholder gets the full coupon payment at the next payment date, so the buyer compensates the seller for the portion they earned.

🗓 Key Concepts for Series 7

🧮 Accrued Interest Formula (30/360)

Accrued Interest = (Principal × Coupon Rate × Days of Interest) ÷ 360

Where:

• Principal = usually $1,000 per bond
• Coupon Rate = stated annual interest
• Days of Interest = number of days from last interest payment date to but not including settlement date

🔁 When Do Bonds Pay Interest?

• Most bonds pay semiannually (twice a year)
• You’ll be given the last interest payment date and trade/settlement date on the exam

🧠 Example – Corporate Bond (30/360)

A 6% corporate bond pays interest on March 1 and September 1. A trade settles on April 15. What is the accrued interest?

1. Days of Accrued Interest
   • March: 30 – 1 = 29 days (don’t include March 1)
   • April: 15 days
   • Total: 44 days
2. Formula:
   • Accrued Interest = (1,000 × 0.06 × 44) ÷ 360 = $7.33

✅ The buyer owes the seller $7.33 per bond in accrued interest.

🧠 Example – Treasury Bond (Actual/365)

A 4% Treasury bond pays interest on January 15 and July 15. The trade settles on March 10.

1. Count Actual Days
   • Jan 15 to Jan 31 = 16 days
   • February = 28 days (if not leap year)
   • March 1 to March 9 = 9 days
   • Total: 53 days
2. Formula:
   • Accrued Interest = (1,000 × 0.04 × 53) ÷ 365 = $5.81

✅ Buyer owes $5.81 in accrued interest.

📚 Exam Tips

• Always exclude the settlement date when calculating accrued interest
• Remember 30/360 for corporates and munis, actual/365 for Treasuries
• Expect both basic math questions and logic-based scenarios
• Don’t forget: new issues don’t accrue interest—they are sold with an “interest starting date”

🚀 Master Bond Math with Confidence

Learn every Series 7 formula—including accrued interest, yield, and margin calculations—with our full exam prep course:
👉 finra-exam-mastery.com
Formulas made simple. Concepts made clear. Pass guaranteed.