Accrued Interest:

The interest due on a bond since the last interest payment was made. The buyer of the bond pays the market price plus the accrued interest.

Bond:

An IOU or promissory note of a corporation, municipality, or the US government, usually issued in multiples of $1,000 or $5,000, with maturities of more than 10 years.

Interest:

Payments made by a borrower to a lender for the use of its funds. A corporation pays interest on its bonds to the bondholders.

Note: we will be getting into the formulas to calculate accrued interest. An anecdote about when I studied for my Series 7 test was that I did not now know which months had 31 days versus which one’s had 30 days. The true saga was that I did not know that I had them wrong and the results would be, or course, wrong. Literally drove me to drink because this is simple math. At last someone pointed out that I was missing a 31 day month on my list. I rule!!!

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Learn more about finance terms at Investopedia

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