Accrued interest

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.

References

  • Accrued Interest summary of the London Stock Exchange for bonds
  • What is accrued interest? Definition for loans by peer-to-peer lender Funding Circle

Ofer Abarbanel – Executive Profile

Ofer Abarbanel online library

Ofer Abarbanel online library

Ofer Abarbanel online library