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iBond Interest Calculation - help!
Old 12-05-2007, 05:03 AM   #1
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iBond Interest Calculation - help!

This isn't the question about how to calculate the going interest rate for a given iBond, rather, its a question about how they calculate the coupon payment itself.

I'll use an actual example....

I have a 30k ibond purchased in Nov 2003. TreasuryDirect gives its current interest rate as 4.18% (since Nov 1st).

The value listed on TD after the 11/1 'coupon' was credited was $34,632. I would expect the coupon credited on 12/1 to have been $34,632 * 4.18% * 30/365 = $119

What they actually credited me for was $108.

I've posed the question to them, but in the mean time, does anyone know what's going on here? What is the precise calculation they use to determine the coupon payment?

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Old 12-07-2007, 02:28 PM   #2
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I got an answer, I thought I'd post it for posterity.

There's a three month lag between the accrual of interest and the posting of it. This is how they implement their 3 month interest forfeiture for bonds sold inside of 5 years - they don't show you the interest until its yours.

Thus the accrual in value posted Dec 1 is really from three months ago, when a different interest rate was in effect. Thats why my calculations didn't seem to mesh with theirs.

Also, unlike normal Treasurys they don't use Actual/365 day count convention, rather they just accrue 1/12 of the annual rate each month.

Money's just something you need in case you don't die tomorrow.
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Old 12-07-2007, 02:39 PM   #3
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Thanks Maurice.

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