Calculate Accrued Interest
The interest that has accumulated on a bond since the last interest payment up to, but not including, the settlement date.
The interest that has accumulated on a bond since the last interest payment up to, but not including, the settlement date.
So what does this tell you? You need to know accrued interest in order to determine the full price of a bond. If an investor is selling a bond between coupon dates, he or she has earned part of the coupon interest but will not receive it unless it is added to the price of the bond. If the bond seller doesn't add accrued interest to the bond price, the bond purchaser will receive the full coupon payment even though he or she did not hold the bond for the entire time period between coupon payments.
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