Adapted from SN Fixed Income Pg138
Q13
An 8% semiannual coupon, $1000 par value 5-year bond is issued on Dec 30, 20X2 and matures on Dec 30, 20X7. The bond pays its coupons on June 30 and Dec 30 of each year. On Feb 15 of 20X2 (I suppose is Feb 15 of 20X3 as there’s no accrued interest prior to issuance of bond) the bond has a yield to maturity of 6.5%. Accrued interest on this date using the 30/36- method is closest to:
A. $15.00
B. $20.00
C: $25.00
The answer given is B. Accrued interest = $1000 x 8% x 45/180 = $20
I thought it is not correct as we need to calculate using semiannual coupon, which is 4% of 1000. ie. Accrued interest = $1000 x 4% x 45/180 = $10.
Can anyone confirm my thoughts? or did I overlook anything? Thanks!