Accrued Interest Calculator

Accrued interest is the portion of a future coupon payment on bonds that has accumulated up to the settlement date. This calculator allows you to find accrued interest, accrued interest per 100 units of par value and price (settlement price) which is calculated from net price plus accrued interest by entering relevant data such as bond date, coupon rate and face value.

What is term of interest?

Bonds pay coupons on specific dates but also accrue interest daily between coupon payment dates. The accrued interest is the portion of the next coupon that has accumulated up to the settlement date. Since the seller held the bond for a certain period within the current interest period, the buyer must pay the seller the interest due for that period. At the next coupon payment date, the issuer pays the full amount of the coupon for that period to everyone who owns the bond at that time, thus settling the accrued interest.

How to use this calculator:

Enter the issue date, first payment date and settlement date in sequence. Also enter the coupon rate, par value and frequency of payments. Select the day count method applicable to the bond to display the interest period in the results area. Activate the "Settlement price" option to input the net price of the bond and calculate the actual price that the buyer pays. Clicking on "Show details" will give a more detailed representation of the progress through the current interest period, as well as the scheduled coupon payments for each period.

Formula to calculate interest period:

If the payment date falls within an interest period, accrued interest income is calculated by multiplying the face value with the coupon rate and then multiplying it by the percentage of time that has elapsed.

The calculation based on the interest payment period is to multiply par value by the coupon rate for an interest payment period and then by the fraction of that period which has elapsed.

A is the number of days elapsed in the specified period and NL is the total number of days in that period. Both values are calculated according to the selected day count convention. For example, for a bond with a par value of $1,000, a 10 percent coupon rate, semi-annual payments, and a reference date of 30/360, accrued interest after sixty days from the start of the period is:

Each input is listed below alongside the value it takes in the bond above.

Practices for calculating time periods.

The method of calculating the days and the number of days in a year are determined by the calculation period used for the number of days. Please select the one that matches the terms of the bond as there may be slight differences in the result depending on the period used.

Clean prices and dirty prices

Bonds are usually quoted at a "clean" price, which does not include accrued interest. The "dirty" price is also called the settlement price or invoice amount and is the sum of the clean price plus accrued interest; it represents the actual cash payment made when settling the trade. The price shown on the screen is usually the clean price, while the actual cash payment is based on the dirty price. You can switch between the two prices by selecting "settlement price" in the calculator tool.

For an example bond with $1000 Par value, 5% coupon paid semiannually.

The resultant Accrued Interest turns out to be $12.50 and the Invoice (dirty) price would be $1012.5

Why accrued interest is important

Buying and selling bonds in the secondary market almost always involves a transaction that is not exactly on an interest payment date, which results in accrued interest. The accrued interest determines the settlement price stated in the trade document, and it allows for the bond's yield to be split between price changes and interest income. If the calculation of days and dates are correct, then the total settlement price for the entire portfolio can also be determined exactly.

Practical tips

Use the calculation standard actually set in the bond for the number of days and do not simply apply the default option as this can lead to different results. Enter the face value in the field "Face Value" for all bonds that are subject to this transaction, and not the price. The accrued interest belongs to the seller but is passed on to the buyer. The buyer then receives this amount back at the next full interest payment.