Accrued Interest
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.
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- Counter-Example(s)
- See: Short-Term Debt, Loan, Bond, Interest, Fee, Settlement Date.
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.
- 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.
- (City Council of Barnstable, 2016b) ⇒ Town of Barnstable. (2016). “Town of Barnstable Adopted Operating Budget - 2017."
- QUOTE: Accrued interest: The amount of interest that has accumulated on the bond since the date of the last interest payment, and in the sale of a bond, the amount accrued up to but not including the date of delivery (settlement date). (See Interest).
- (MSRB, 2016) ⇒ Glossary of Municipal Securities Terms: http://www.msrb.org/Glossary/Definition/ACCRUED-INTEREST.aspx Retrieved 2016-10-30
- QUOTE: The dollar amount of interest, based upon the stated rate of interest, that has accumulated on a security from (and including) the most recent interest payment date (or, in certain circumstances, the dated date or other stated date), up to but not including the date of settlement of a transaction in such security. Accrued interest is paid to the seller by the purchaser. Accrued interest is usually calculated on the basis of a 360-day year (assuming that each month has 30 days), but alternative day counting methods (most commonly based on a 365- or 366-day year counting actual days elapsed) are used for many securities that bear interest at a variable rate and for certain other types of securities (e.g., some municipal notes). The formula for computing accrued interest based on a 360-day year is as follows:
[math]\displaystyle{ \text{Accrued Interest} = \text{Interest Rate} \times \text{Par Value} \times \frac{ \text{Number of Days}}{360} }[/math]
2008
- (MA DoR, 2008) ⇒ Massachussets DoR. (2008). “Municipal Finance Glossary.” Massachussets Department of Revenue - Division of Local Services
- QUOTE: Accrued Interest – The amount of interest that has accumulated on the bond since the date of the last interest payment, and in the sale of a bond, the amount accrued up to but not including the date of delivery (settlement date). (See Interest)