Accrued interest

Accrued interest ( Swiss: Accrued Interest ) correspond to accrued interest claims that must be paid by the buyer of a coupon-bearing bond to the seller.

Cum coupon - ex coupon

Bonds may be listed in two ways in the stock market:

• Cum coupon - then the accrued since the last coupon payment portion of the coupon is included in the market value of the bond. On the day of payment of the coupons is there a price discount (also called " dirty price "). This type is also referred to as " flat" notation. Shares are traded cum coupon.
• Ex coupon - then the bond price does not contain a coupon portion (also called " clean price "). Bonds are usually ex coupon listed, to avoid unnecessary fluctuations, due solely to the accrued interest problem.

Calculation

When you buy a bond to the previous owner not only the course, but also its share of the coupon is payment to be made ( the interest income of the security ), since the former has economically and legally already purchased this claim, the buyer will be paying but ultimately fully collected. If the issuer of the bond is insolvent, accrued interest, however, are not to pay. The following formula is usually used:

With the accrued interest in monetary units, the number of days since the last coupon payment and the coupon in monetary units. The financial mathematically correct value is the present value of the amount calculated as above formula, since the coupon is paid out even later and the new owner the coupon have to advance interest free in this way:

With the accrued interest in monetary units, the coupon in monetary units, the market interest rate and the number of annual compounding periods have passed since the last coupon payment. The difference between the results of both formulas is a payment date of the coupon around smallest; it is not negligible between two coupon payment dates. Ideally, the market should compensate for this difference such that the bond between two coupon dates quoted slightly lower than around the coupon date.

Accrued interest in the valuation of bonds

If you want the fair price of a "plain - vanilla" bond using the present value method to determine whose residual maturity is not to full years, this must be taken into account when discounting:

With the price of the bond in euros ( cash value ), the number of periods, the interest rate, the coupon, the amount payable at maturity (nominal value), the days until the next coupon payment / 360, the period in which flow to the payment and the accrued interest are.

Tax Treatment of Accrued Interest

The tax and bank- technical treatment of accrued interest in Germany is described in the article accrued interest pot.

• Financial Mathematics
• Bond market