Most bonds are issued the same day they are dated. But sometimes bonds are issued between interest dates. This means some interest has already accrued at the time the bonds are sold. How do we account for this? If an investor purchases a bond between interest dates, the investor must pay the borrower any accrued coupon interest when buying the bond. For example, let’s look at the following bond issuance: On January 1, 2024 a company issues 3-year bonds with a face value of $500,000 and a stated annual interest rate of 7%. Interest is paid semiannually on June 30 and December 31. The market interest rate for bonds of similar risk and maturity is 8%. The issuer of the bonds would normally receive $486,895 for the bonds (I have other videos showing how the issue price of a bond is calculated). But let’s say the bonds aren’t sold to …
