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"Act/Act Bond" - Cross-Period Accrual
How does "Act/Act Bond" convention works on an Accrual Range that crosses one or more Accrual Period boundaries?
✍: FYIcenter.com
When an Accrual Range crosses one or more Accrual Period boundaries,
it needs to be split into multiple smaller parts, so that each part can fit
into a single period.
Here is an example of US bond security:
CUSIP: 912810UE6 Issuer: US Treasury Interest rate: 4.5% Interest frequency: Semiannually (2 times in a year) Day Count Convention: Act/Act Bond Term: 30 Years Start Date: 2024-11-15 Maturity Date: 2054-11-15
If you bought $1,000.00 of this US bond, here is how you can calculate Accrued Interest in the date range of [2024-11-30, 2024-05-31) using the Act/Act Bond convention:
1. Split the Accrual Range into multiple parts
R1 = [2024-11-30, 2025-05-15) within P1 =[2024-11-15, 2025-05-15) Accrual Period R2 = [2025-05-15, 2025-05-31) within P2 =[2025-05-15, 2025-11-15) Accrual Period
2. Calculate Accrued Interest for each part
Accrued_Interest(R1) = $1,000.00 × 4.5% × Day_Count_Factor(R1) = $1,000.00 × 4.5% × 0.5 × Calendar_Days(R1)/Calendar_Days(P1) = $1,000.00 × 4.5% × 0.5 × 166/181 = $20.635359116022 Accrued_Interest(R2) = $1,000.00 × 4.5% × Day_Count_Factor(R2) = $1,000.00 × 4.5% × 0.5 × Calendar_Days(R2)/Calendar_Days(P2) = $1,000.00 × 4.5% × 0.5 × 16/184 = $1.9565217391304
3. Sum up Accrued Interests from every part
Accrued_Interest = Accrued_Interest(R1) + Accrued_Interest(R2) = $20.635359116022 + $1.9565217391304 = $22.591880855152 = $22.59
⇒ "Act/Act Bond" - Daily Compound Interest
⇐ "Act/Act Bond" - Whole Accrual Period
2026-02-02, ∼115🔥, 0💬
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