2007-01-14 22:10:13 · 5 answers · asked by sonu k 1 in Business & Finance ➔ Investing
An example of accrued interest, is the interest earned on a bond. Bond interest is paid normally twice annually but is earned daily. When you buy a bond, you pay the seller the interest that has been accrued by not yet paid on the bond. When you sell a bond, you receive from the buyer the interest that has been accrued but not yet paid.
For bond purchasers it adds an additional dimension to the purchase of bonds, because they need to figure into their costs the amount of interest that they will be paying on the purchase price. It can actually make their yields on the bonds somewhat less than advertised.
2007-01-14 23:20:19 · answer #1 · answered by Anonymous · 1⤊ 0⤋
Unlike other securities, the value of bonds is broken into two parts -- the price and the accrued interest. The accrued interest is equal to the coupon rate times the number of days since the last coupon date divided by the number of days in a year.
There may be special rules for day counting (for example, for corporate bonds in the US, each month is assumed to have 30 days an each year is assumed to have 260 days -- but for Treasury bonds, the actual number of days is used)/
The reason for breaking the value into two parts has to do with taxes. If I buy a bond now and sell it in three months, I have to pay capital gains tax on any increase in price. But I have to pay ordinary income tax on the interest accrued.
Someone else said that AI can make the bond's yields less than advertised. This is not true. Accrued Interest is included in the yield calculations.
2007-01-15 10:56:16 · answer #2 · answered by Ranto 7 · 0⤊ 0⤋
Since everybody has answered the Financial part of Accrued Interest, let me answer in the Accounting perspective. It is an entry on the Liability side after A/P, S.T and L.T liabilities and then Accrued Interest on the Balance Sheet. It is the proviso for debt liabilities undertaken by the Company.
2007-01-15 11:08:23 · answer #3 · answered by Mathew C 5 · 0⤊ 0⤋
Earned but not yet paid to you. A debtor on your balance sheet. Usually a term used when referring to interest on floating rate or fixed income bonds.
2007-01-15 06:14:26 · answer #4 · answered by prof_g_whizz 2 · 0⤊ 0⤋
it is the intrest which is earned but not received yet.you can say it is outstanding means to be received intrest.
2007-01-15 06:57:31 · answer #5 · answered by neha t 1 · 0⤊ 0⤋