When a bond is purchased between interest payments dates: a. The buyer of the bond must...

When a bond is purchased between interest payments dates:

	a.	The buyer of the bond must pay to the seller of the bond portion of the coupon payment accrued between the last coupon payment and the settlement day.
	b.	The seller of the bond must pay to the buyer of the bond portion of the coupon payment accrued between the last coupon payment and the settlement day.
	c.	The buyer of the bond must pay to the seller of the bond portion of the coupon payment accrued between the last coupon payment and the next coupon payment day.
	d.	The seller of the bond must pay to the buyer of the bond portion of the coupon payment accrued between the last coupon payment and the next coupon payment day.

Expert Solution

Answer :- a. The buyer of the bond must pay to the seller of the bond portion of the coupon payment accrued between the last coupon payment and the settlement day.

Reason :-

As till settlement date seller holds the bond, so he is entitled to received the interest for the period till settlement date. And on next coupon date buyer will received full interest from last coupon payment till date but buyer is entitle only for the interest after settlement date. So Buyer must pay to seller the interest accured from last coupon date to settlement date.

jeff jeffy answered 2 years ago

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