# Accrued Interest in calculating future price of a Bond

Hi all,

as the formula of future price of a Bond states, Accrued Interest at T must be subtracted before devising by the conversion factor (CF)

Well I crossed 2 questions about future prices of Bonds in TTs where we didn’t exclude AI(T), does anyone has an explanation ??? please please.

Both of the questions are pretty clear in saying that theres no accrued interest.

Could you please post the question here! Maybe the AI at future contract expiration equal to 0 (the bond has just paid dividend at time T, for example).

Yes, there’s no AI in the beginning, meaning the coupon has just been paid. last TT where I faced such case was the 4th in Derivatives (I don’t remember the name). it was a T-Bill, with semi annual coupon. AI was 0 at the time =t, and we were asked to calculate the future price of it in 8 months. in 6 month there will be a coupon to receive, and I think by the term of the future contract there will be 2/6 of AI(T), that should be deducted.

Sorry @ bqh9 , I think we’re not allowed to post Questions. it’s in the 4th TT of Derivatives, you can check it

Both of the questions are pretty clear in saying that theres no accrued interest.

Okey, so whenever they say “there’s no AI” we gonna ignore both AI(0) and AI(T). I thought that meant that only AI(0)=0, not that we should ignore AI(T) too. Im sorry my friend, doesn’t sound to me logical that during 8 months of a T-bill 's life, it won’t have an AI at all.

thank u so much for the help, I will considered the way i said, hope won’t get smashed in the exam

There would be AI at the end. Assuming the bond is issued on the coupon payment date, there would be no AI at T=0,as such, at T=8 months, there would be accrued interest from time T=6 to T=8 (assuming semi-annual coupon payment)

I know what question you are talking about and I never got why they don’t subtract the 2 months worth of accrued interest before dividing by the CF. They take care of the first coupon pmt but don’t address the second one, its weird.