| Accrued Interest |
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The
interest that has accumulated on a bond since the last interest payment
up to, but not including, the settlement date and that is added to
the contract price of a bond transaction. There are two methods for
calculating accrued interest:
- 360 day year method which is used for corporate and municipal bonds.
- 365 day year method used for government bonds.
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Essentially
the interest is earned...but since the bond hasn't expired or payment
hasn't been made you haven't officially earned the money. It is used
in determining the price of the bond. |
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Dictionary
