Accrued Interest
Definition
Accrued interest is the interest earned since the last coupon date up to settlement. Buyers pay it to sellers on top of the quoted clean price, so the cash price at settlement is the dirty (full) price.
Key Takeaways
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Dirty = Clean + Accrued Interest (paid/received at settlement).
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Resets to zero on the coupon date; dirty price “drops” roughly by the coupon.
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Calculated with a day-count convention (e.g., Actual/Actual, Actual/365, 30/360).
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Used in YTM math (yields should be based on dirty price).
How to Compute (step-by-step)
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Identify last coupon and next coupon dates.
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Determine the day-count convention from the term sheet/prospectus.
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Count accrued days since the last coupon and period days to the next coupon (by that convention).
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Coupon per period = (Face × Coupon rate) ÷ payments per year.
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Accrued Interest = Coupon per period × (Accrued days ÷ Period days).
Nigeria Example (illustrative)
Face = ₦1,000,000; coupon = 13%, semi-annual.
Coupon per period = ₦65,000.
Assume Actual/Actual, accrued days = 90, period days = 182 →
Accrued = ₦65,000 × 90/182 ≈ ₦32,142.
If clean price = ₦1,025,000 → Dirty = ₦1,057,142.
Common Pitfalls
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Using the wrong day-count (Actual/Actual vs 30/360, etc.).
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Forgetting settlement uses dirty price.
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Confusing record date/ex-coupon rules when deciding who gets the next coupon.
Mini-FAQ
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Who receives the next coupon? The holder of record on the record date (check terms).
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Why do screens show clean price? To remove the mechanical up-drift from accrued interest.
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Which price for YTM? Use dirty price.
Related Terms
Clean Price · Dirty Price · Coupon · Yield to Maturity (YTM) · Day-Count Convention · Settlement Date · Ex-Coupon
