Accrued Interest

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An Accrued Interest is a interest on a loan or bond that has accumulated since the date of the last interest payment.

  • Context:
    • It can be calculated as [math]\displaystyle{ I_A = R\times P \times T }[/math]
where and [math]\displaystyle{ R }[/math] is the yearly interest rate, [math]\displaystyle{ P }[/math] is the principal, and [math]\displaystyle{ T }[/math] is time period passed since the last interest payment given in units of years, i.e. number of days in the time period divided by the number of days in one-year.


References

2016

  • (Wikipedia, 2016) ⇒ http://en.wikipedia.org/wiki/Accrued_interest Retrieved 2016-10-30
    • In finance, accrued interest is the interest on a bond or loan that has accumulated since the principal investment, or since the previous coupon payment if there has been one already.

      For a financial instrument such as a bond, interest is calculated and paid in set intervals (for instance annually or semi-annually). Ownership of bonds/loans can be transferred between different investors not just when coupons are paid, but at any time in-between coupons. Accrued interest addresses the problem regarding the ownership of the next coupon if the bond is sold in the period between coupons: Only the current owner can receive the coupon payment, but the investor who sold the bond must be compensated for the period of time for which he or she owned the bond. In other words, the previous owner must be paid the interest that accrued before the sale.



[math]\displaystyle{ \text{Accrued Interest} = \text{Interest Rate} \times \text{Par Value} \times \frac{ \text{Number of Days}}{360} }[/math]

2008