Identifier: C2T1L5 | Revision: 2026-10-26

Decision and objectives

A price is agreed on Friday, but settlement occurs after a holiday. The extra days can change accrued interest, financing and payment eligibility. Separate trade date, when the agreement is made, from settlement or value date, when cash and securities obligations are completed. The actual market and instrument calendar govern; this lesson supplies a fictional one.

Objectives: Calculate accrual under two day bases; Apply a supplied business-day adjustment; Reconcile trade date and value date funding.

Prerequisites: C2T1L4.

Mechanics

Day count defines the fraction of a year or coupon period used for accrual. ACT/365 uses actual calendar days divided by 365; ACT/360 uses actual days divided by 360. An actual/actual coupon convention can use elapsed actual days divided by actual days in the relevant coupon period. A 30/360 convention adjusts dates under a specified method; US and European variants must not be treated as identical.

Business-day adjustment answers whether a scheduled date moves when markets or payment systems close. Following moves to the next eligible business day; modified following can move backward if following crosses a month-end; preceding moves backward. The contract separately determines whether accrual uses adjusted or unadjusted dates. Moving payment does not automatically create extra interest.

Price and return drivers

Simple cash accrual = principal × annual rate × days / basis. Changing 360 to 365 without changing the annual quote changes the cash result. A quote comparison must preserve the original convention before translating both offers onto a common basis.

Settlement can change both ownership timing and accrued amount. Funding must be available when the intermediary requires it, which can precede final market settlement. A calendar reminder is not evidence that cash is withdrawable on the payment date; operational crediting also matters.

Worked case

Hypothetical principal TRY 120,000; simple annual rate 18%; 91 actual accrual days; no costs or tax. ACT/365 interest = 120,000 × 0.18 × 91 / 365 = TRY 5,385.21. ACT/360 gives TRY 5,460.00. The TRY 74.79 difference comes only from the basis.

Fictional calendar: trade Monday 29 June; required settlement is two business days later; Tuesday 30 June is a settlement holiday; Wednesday 1 July and Thursday 2 July are open. Settlement is Thursday 2 July. Tuesday is not counted as a settlement business day, although it can still count as an actual accrual day. A scheduled Sunday payment with following adjustment goes to Monday if open; whether the extra day earns interest remains a term-sheet question.

Adverse case

For a separate hypothetical coupon bond, accrued per 100 is 1.50 on the dealer's assumed settlement date but 1.60 on the confirmed date. For TRY 500,000 nominal the additional debit is 500,000 × 0.10 / 100 = TRY 500. A cash budget with no buffer fails even if the clean quote is unchanged. If settlement fails because funds are late, contractual or intermediary penalties may apply; no current penalty is assumed here.

Practical use

Obtain the relevant calendar, day count, settlement lag and cutoff in writing. Cross-currency issues can require more than one financial center to be open. Check coupon record or entitlement rules and treatment of failed settlement. MKK describes member-based operations for domestic book-entry securities, but does not make every issue share one settlement cycle. Avoid importing equity-market settlement assumptions into debt trading.

Decision boundaries

A numerical answer is incomplete without a date convention. Do not divide by 360 merely because a calculator defaults to it or infer the accrual period from the adjusted cash-payment date. When a payment must fund rent on Monday morning, allow for the actual account credit and transfer process; retaining cash can be preferable to chasing two additional days of quoted return.

Practice and references

Exercise: hypothetical TRY 75,000 principal, 16% simple annual accrual, 73 actual days, ACT/365, no tax or fees. Answer: interest = 75,000 × 0.16 × 73 / 365 = TRY 2,400. If the same contractual rate instead used ACT/360, interest would be TRY 2,433.33. State which document fixes the denominator before booking either amount.

Takeaway: the settlement date and the interest clock are related but separate conventions.

Reference guide: domestic-government-bond, day-count-interest, Day count, Settlement date.

Next: C2T2L1. Topic test: C2T1.

Primary sources (checked 2026-10-26; changing terms require a publication recheck): Borsa Istanbul announcement amending Debt Securities Market Procedure — 9.1.5; Annex 1; quotation and settlement price distinctions; MKK Borsa Istanbul Debt Securities Market — Instrument list and member transfer/settlement processes.

Shared reference guide | Class examination