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Accrued Interest Formula:
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Accrued interest is the interest that has accumulated on a financial instrument but has not yet been paid or received. It represents the amount of interest earned or owed over a specific time period between payment dates.
The calculator uses the accrued interest formula:
Where:
Explanation: The formula calculates the interest that accumulates daily based on the principal amount and annual interest rate, then multiplies by the number of days.
Details: Accurate accrued interest calculation is crucial for bond pricing, loan accounting, investment tracking, and financial reporting. It ensures proper recognition of interest income or expense between payment periods.
Tips: Enter the principal amount in dollars, annual interest rate as a percentage, and time period in days. All values must be positive numbers.
Q1: Why use 365 days instead of 360?
A: The 365-day basis is more accurate for annual calculations, though some financial instruments use a 360-day year convention.
Q2: How is accrued interest different from regular interest?
A: Accrued interest represents the accumulated but unpaid interest between payment dates, while regular interest refers to the actual interest payments made.
Q3: When is accrued interest typically calculated?
A: It's calculated for bonds between coupon payments, loans between payment dates, and investments between dividend distributions.
Q4: Does this calculator work for compound interest?
A: No, this calculator uses simple interest calculation. For compound interest, a different formula would be needed.
Q5: Can I use this for daily interest calculations?
A: Yes, this calculator is ideal for calculating interest for any number of days, making it perfect for short-term investments or loans.