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Bonds and bills: lending, accrued interest and settlement cash

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Start with the idea

A bond is a promise to make payments, subject to its terms and the issuer’s ability to pay. Trading one means pricing those cash flows and understanding the amount actually due at settlement.

Symbols, units & horizon
  • F: face value in dollars
  • c: annual coupon as a decimal
  • d: elapsed accrual days under the chosen convention
  • B: annual day-count denominator, assumed 360 here
  • A: accrued interest in dollars
  • P_clean: quoted dollars per $100 face
  • C: dollar transaction costs
  • example: simple regular coupon accrual, not every bond convention

When and why to use this

Use this cash calculation to size bond orders and reconcile quoted prices with actual account debits.

Face value is the amount used to calculate contractual payments, not necessarily the price paid. A coupon bond pays interest on a schedule; a discount bill generally has no periodic coupon and pays face value at maturity. Credit quality, seniority, collateral and embedded call rights change the claim.

Many bonds are quoted as a percentage of face value. A clean price excludes accrued coupon interest; a dirty price includes it. The buyer generally compensates the seller for accrued interest under the instrument’s day-count convention. Defaulted or special instruments may use different conventions.

Before ordering, identify maturity, coupon dates, minimum denomination, callable terms and settlement cash. Dealer or request-for-quote markets may offer less transparent liquidity than a liquid equity book. A quoted yield is a model summary of cash flows, not a guaranteed holding-period return.

Rate changes, credit-spread moves, reinvestment, calls and default affect outcomes. Treasury, corporate and municipal claims have different issuer and contractual characteristics. Start with cash-flow valuation and duration lessons before investigating carry, curve or credit strategies.

A=FcdB,Cash=FPclean100+A+C
Model assumptions, derivation and arithmetic

Bonds and bills: lending, accrued interest and settlement cash

  1. Annual coupon cash is Fc. Allocate the fraction d/B to elapsed accrual time.
  2. Convert the clean quote from per-$100 units into dollars by multiplying face value by P_clean/100.
  3. Add accrued interest and transaction costs to obtain settlement cash.
Work it by hand

Face $10,000, clean quote 98.5, coupon 6%, accrual 30/360 and costs $5 imply accrued interest 10,000×.06×30/360=$50. Settlement cash=9,850+50+5=$9,905.

Apply it in a strategy

  • Read cash-flow, credit, call and settlement terms.
  • Convert the quote to actual cash using the correct day count and denomination.
  • Evaluate rate and spread scenarios, then compare executable dealer quotes rather than stale marks.

Research deliverable

Build a bond settlement ticket and link it to the duration and credit-spread lessons.

Mechanics & research · reviewed 12 September 2026

Official educational material checked 12 September 2026. These examples use hypothetical prices and costs. Check the actual product specification, broker terms, venue calendar and jurisdiction before building an instrument adapter. Debt claims, coupon, maturity and credit/rate risks checked.

Further reading: Investor.gov · Bonds ↗

Official market-data guidance reviewed. Bond transactions may be sparse, and some instruments trade flat of accrued interest. Do not assume every displayed mark is an executable quote.

Further reading: FINRA · Trade activity and trade history data ↗

Python implementation

Self-contained teaching example. Python 3.10+; dependencies and input conventions are shown in the code and notation. Run in your own Python environment.

def bond_settlement(face,clean,coupon,days,basis=360,cost=0):
    if face<=0 or basis<=0 or min(clean,coupon,days,cost)<0: raise ValueError("Invalid cash-flow inputs")
    accrued=face*coupon*days/basis
    return accrued,face*clean/100+accrued+cost

print(bond_settlement(10000,98.5,.06,30,360,5))

Continue learning

Trading Different Assets: Instruments, Mechanics & Risk — all lessons
  1. Start with the instrument: exposure, ownership and obligations
  2. Stocks and ETFs: shares, dividends, shorting and fund structure
  3. Bonds and bills: lending, accrued interest and settlement cash
  4. Futures: multipliers, ticks, margin and expiry
  5. Commodities: spot goods, storage and the futures curve
  6. Foreign exchange: two currencies, one quote and financing
  7. Options: rights, premiums, exercise and nonlinear exposure
  8. Spot crypto: tokens, venues, wallets and execution
  9. Crypto perpetuals: funding, mark prices and liquidation
  10. Event contracts: resolution rules and probability-priced exposure

Quantitative finance and development glossary · Python resources and libraries · Research sources and limitations