Accrued interest.
In plain English
Bonds pay interest on set dates, but interest builds up every day in between. Accrued interest is the amount earned since the last coupon payment. When you buy a bond between payment dates, you pay the seller the price plus the accrued interest they earned while holding it, and then you collect the full coupon on the next payment date, which reimburses you. It is a fair-splitting mechanism so each owner gets the interest for the days they actually held the bond. It shows up as a separate line on a bond trade confirmation.
01Why it matters
Accrued interest means the cash you hand over to buy a bond is more than the quoted price, so understanding it prevents surprise at the total on your trade confirmation.
02The math, step by step
You buy a bond halfway between its semiannual 60 dollar coupon payments. You pay the price plus about 30 dollars of accrued interest to the seller, then receive the full 60 dollars on the next payment date.
03What this is NOT
Accrued interest is NOT a fee. It reimburses the seller for interest earned before you bought the bond, and you get it back in the next full coupon payment, so it evens out.
04Receipts
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