Accrued Interest
The coupon interest earned on a bond since the last payment date, owed by the buyer to the seller when a bond is purchased between coupon dates.
Formula
Dirty Price = Clean Price + Accrued Interest | Accrued Interest = (Days Accrued / Coupon Period Days) × Coupon
When a bond changes hands between coupon payment dates, the buyer compensates the seller for the portion of the next coupon that has already accrued. The buyer pays the clean price (quoted market price) plus accrued interest; the total is the dirty price (also called the full price or invoice price).
Accrued interest = (Days since last coupon / Days in coupon period) × Semi-annual coupon payment. After the next coupon is paid, the accrued interest resets to zero and begins building again.
Quoted bond prices in screens are always clean prices — adding accrued interest is a step traders must perform when calculating actual cash outlay.
Related Terms
Bond
A debt instrument in which the issuer borrows money from the buyer and promises to pay periodic interest plus return the principal at maturity.
BeginnerCoupon
The fixed annual interest payment made by a bond issuer to the bondholder, expressed as a percentage of face value.
BeginnerFace Value (Par)
The nominal value of a bond that the issuer promises to repay at maturity — typically $1,000 for U.S. bonds.
Beginner