Definition
Accrued interest is the interest that has accumulated on a bond since its last coupon payment date. When buying a bond between payment dates, the buyer pays the seller the accrued interest in addition to the quoted price (clean price). The total is called the dirty price or full price.
Formula
Accrued Interest = (Days Since Last Coupon / Days in Period) × Coupon Payment
Example
A bond with $50 semi-annual coupon bought 60 days after the last payment has about $16.67 accrued interest (60/180 × $50).
FAQ
What is Accrued Interest?
Interest earned on a bond since the last coupon payment.
How do you calculate Accrued Interest?
A common formula for Accrued Interest is: Accrued Interest = (Days Since Last Coupon / Days in Period) × Coupon Payment
Why is Accrued Interest important?
Accrued Interest helps investors evaluate fixed income and make more informed decisions.