Accrued interest

The slice of the next coupon the seller has earned by holding the bond up to the settlement date. The buyer advances it and collects the whole coupon later, so it is a transfer between them rather than a cost.

Where you will meet it

Accrued interest appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Tell apart the full price, the flat price and accrued interest
  CFA Level I · Fixed Income

  “Accrued interest is the portion of the next coupon earned by the seller for the days they held the bond, computed on an actual or thirty-day convention depending on the market.”

• Explain the pricing of fixed-income forwards and futures, and work out their no-arbitrage value and say what it means
  CFA Level II · Derivatives and Risk Management

  “Compound the full price to delivery, subtract the future value of coupons received before then and the accrued interest at delivery, and, for futures, divide by the delivered bond's conversion factor, so the quoted futures price is F0 = [(B0 + AI0) × (1 + r)^T − AIT − FV of coupons] ÷ CF.”

Learn it properly

• Bond pricing and yield to maturity: how a bond is valued Guide

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with A · Glossary