Accrued Interest

What is Accrued Interest?

Accrued Interest is the amount of interest that a bond has earned since the last coupon payment.  If a bond holder sells a bond between coupon payments, they are entitled to receive the accrued interest from the last coupon payment till the date they sell the bond.  When a bond is sold in such a situation, the bond sales price will increase by the amount of accrued interest.  Therefore, the purchaser of the bond will receive the next coupon payment in its entirety. 

Calculating accrued interest is relatively simple; divide the yearly coupon percentage by the day count convention of the bond and multiply that by the number of days between the bond sales date and the last coupon date.  As such, accrued interest is solely related to annual coupon rate and number of days that the bond has been held after the last coupon payment.