You are settling the purchase of a municipal bond with a trade date of August 15th. The bond pays interest on June 1st and December 1st. How many days of accrued interest will be included in the settlement expense?

To determine the amount of accrued interest included in the settlement expense for the municipal bond, it is essential to count the days from the last interest payment date to the settlement date.

The bond pays interest semi-annually on June 1st and December 1st. Since the trade date is August 15th, this means that the last interest payment was made on June 1st. The next payment will be made on December 1st.

To calculate the number of days of accrued interest, we follow these steps:

1. Calculate the days from June 1st to August 15th:

• June: 30 - 1 = 29 days in June after the 1st

• July: 31 days

• August: 15 days

• Total: 29 (June) + 31 (July) + 15 (August) = 75 days

2. Accrued interest is calculated from the last interest payment date (June 1st) up to but not including the settlement date (August 15th). Hence, the count includes all of the days up to August 14th, leading to the calculation being 75 full days.