Series 7 practice questionmediumDebt Securities — Bond Pricing — Accrued Interest
When purchasing a bond in the secondary market between coupon payment dates, the buyer must pay the seller:
- AThe full next coupon payment in advance
- BA penalty fee for buying between payment dates
- CNo additional amount beyond the market price
- DAccrued interest from the last coupon payment date to the settlement date✓ Correct answer
Explanation
Why D — Accrued interest from the last coupon payment date to the settlement date
When a bond is purchased between coupon dates, the buyer pays the seller accrued interest — the portion of the next coupon that has accumulated from the last payment date to the settlement date. This compensates the seller for holding the bond during that period. Corporate and municipal bonds accrue interest on a 30/360 basis, while US government securities use actual/actual day counts.
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