Bond Accrued Interest Calculator

Accrued Interest Formula:

\[ \text{Accrued Interest} = \left(\text{Coupon Rate} \times \frac{F}{m}\right) \times \left(\frac{\text{Days Since Last Payment}}{\text{Days in Period}}\right) \]

Coupon Rate:

decimal

Face Value (F):

currency units

Payments Per Year (m):

unitless

Days Since Last Payment:

days

Days in Period:

days

Accrued Interest:

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1. What is Bond Accrued Interest?

Accrued interest is the interest that has accumulated on a bond since the last coupon payment date but has not yet been paid to the bondholder. It represents the earned interest that will be paid on the next coupon date.

2. How Does the Calculator Work?

The calculator uses the accrued interest formula:

\[ \text{Accrued Interest} = \left(\text{Coupon Rate} \times \frac{F}{m}\right) \times \left(\frac{\text{Days Since Last Payment}}{\text{Days in Period}}\right) \]

Where:

\( \text{Coupon Rate} \) — Annual coupon rate (decimal)
\( F \) — Face value of the bond (currency units)
\( m \) — Number of coupon payments per year
\( \text{Days Since Last Payment} \) — Days elapsed since last coupon payment
\( \text{Days in Period} \) — Total days in the current coupon period

Explanation: The formula calculates the proportional interest earned based on the time elapsed in the current coupon period.

3. Importance of Accrued Interest Calculation

Details: Accrued interest calculation is essential for bond trading, as buyers must compensate sellers for interest earned but not yet paid. It ensures fair pricing in secondary market transactions.

4. Using the Calculator

Tips: Enter the annual coupon rate as a decimal (e.g., 0.05 for 5%), face value in currency units, payments per year (typically 1, 2, or 4), and the relevant day counts. Ensure days since last payment does not exceed days in period.

5. Frequently Asked Questions (FAQ)

Q1: Why is accrued interest important in bond trading?
A: It ensures the seller receives compensation for interest earned during their holding period, making bond pricing fair for both buyers and sellers.

Q2: How are day counts determined?
A: Day count conventions vary (30/360, actual/actual, etc.). This calculator uses actual days, but real-world calculations may use specific conventions.

Q3: Does accrued interest apply to zero-coupon bonds?
A: No, zero-coupon bonds don't pay periodic interest, so accrued interest calculation isn't applicable.

Q4: When is accrued interest paid?
A: Accrued interest is paid to the seller on the settlement date and is included in the bond's purchase price.

Q5: How does payment frequency affect accrued interest?
A: More frequent payments result in smaller coupon amounts per period but similar annual accrual patterns.