WHAT IS THE PURPOSE OF CALCULATING ACCRUED INTEREST? - ProProfs Discuss
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What is the purpose of calculating accrued interest?



Asked by Denver, Last updated: May 17, 2021

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

If you buy the bond on august 1, and the next interest payment date is august 15th, the issuer will be paying the full 6 months interest payment to you, because you are the current owner of the bond. this isnt a fair deal for the seller of that bond. so when you buy the bond, not only do you have to pay the purchase price, you also have to pay accrued interest to the seller.so lets say the seller deserves 5 months of interest at the time you buy the bond. you pay the purchase price of the bond as well as 5 months worth of interest. then, when the bond issuer pays interest, you receive a full 6-month interest payment. heres the result:- seller got the purchase price plus 5 months interest.- you paid for the bond and you paid for 5 months interest but receive a 6-month interest payment on the interest payment date. so effectively, you are left with the bond and one month of interest (6 months of interest received 5 months of interest paid = 1 month of interest).
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