Hull Chapter 6 US Treasury Bonds Day Count

[Roberto Hernández]

Hi Team,

I hope you're having a great day. I was hoping you could share some expert advice in here. For US T-Bonds in order to calculate the dirty price we have to have the clean price and accrued interest since last coupon payment.

Now, I have seen myself struggling a little bit on the day counting for the interest accrual. e.g., assuming semiannual coupons from January 10 to March 5 there's 54 days so since this is a US T-Bond we will use Act/Act resulting on 54/181*interest.

My question/concern is more focused to the distance in days between January 10 to March 5 (54). I easily see myself wasting precious time on doing so. So my two questions are:

1. The day of the exam should we expect a question in which we will have to count the days to accrue the interest? or the days may be given just to test if you know the day count conventions based on the debt type?
2. On your experience, do you have any practical advice to facilitate this lame but time consuming calculation without access to a PC?

Thank you Team!
-Roberto

 

[ShaktiRathore]

Hi,

I think you need to calculate the days in between when the interest accrues. Its very simple when you know the number of days in each months.
Jan=31,Feb=28,Mar=31,Apr=30,May=31,Jun=30,July=31,Aug=31,Sep=30,Oct=31,Nov=30,Dec=31
You need to calculate the days between January 10 to March 5 ,just start with calculating the number of days in between which are (31-10)21 in Jan+28 days in Feb+4 days in March=53 then simply add 1 to get total of 54 days. Or to find days between 1 Jan and 1 Jul find number of days in between as (31-1)30 day in Jan,28 in Feb+31 in Mar+30 in Apr+31 in May+30 in June=180 days and then add 1 to get total days between 1 Jan and 1 Jul as 181.

thanks

 

[Roberto Hernández]

Hi @ShaktiRathore, thank you for your response. I believe this is a great approach intuitive and logical and I think that's the way we all would tackle this on a first encounter, still I think it is a little bit time consuming, nonetheless, I found that the calculator has a 'Date' workbook for these calculations on Actual and 360 conventions, so mistery solved.

I have a TI BA II Plus professional, the Date workbook is explained within page 75 of the manual, for future reference .

*Edit: I also found this video in case someone else find it useful, it shows how to use the Date worksheet in two ways, computing the difference between two dates and also supplying the start date, the number of days and computing the second date.

Thank you,
-Roberto