Accrued interest days - Financial definition
Concise definition of the term accrued interest days
Accrued interest days represent the number of days that have passed since the last interest payment on a fixed-income security, up to and including the settlement date of a transaction involving that security.
Comprehensive definition of the term accrued interest days
In the context of fixed-income securities, accrued interest days are used to calculate the amount of interest that the buyer owes the seller when the security is traded between coupon payments. This is particularly relevant in the bond market, where bonds typically pay interest annually or semiannually.
For example, if a bond pays interest on January 1 and July 1, and it is sold on April 1, the buyer would owe the seller the interest accrued from January 1 to April 1. Accrued interest is added to the bond's purchase price to ensure that the seller is compensated for the period they held the bond. This practice helps maintain fairness in the bond market and ensures that interest payments are properly allocated between the buyer and the seller.