What does accrued interest for a bond signify?

What does accrued interest for a bond signify?

• A. Interest earned after the last coupon payment
• B. Interest remain after the last record date
• C. Interest due at settlement
• D. Interest on investment returns

Answer: (A)

Accrued interest for a bond represents the interest that has accumulated since the last coupon payment was made. Bonds typically pay interest at regular intervals, such as semi-annually or annually. When a bond is sold or transferred between these coupon payment dates, the buyer is responsible for compensating the seller for the portion of the interest that has accrued up to the settlement date. This means that the buyer pays the seller not just the market price of the bond, but also the interest that has built up since the last interest payment. This is essential for a fair transaction since the seller must be compensated for the time during which they have held the bond and earned interest. Understanding accrued interest is crucial for accurate pricing and valuation of bonds in the market.

Accrued interest for a bond represents the interest that has accumulated since the last coupon payment was made. Bonds typically pay interest at regular intervals, such as semi-annually or annually. When a bond is sold or transferred between these coupon payment dates, the buyer is responsible for compensating the seller for the portion of the interest that has accrued up to the settlement date.

This means that the buyer pays the seller not just the market price of the bond, but also the interest that has built up since the last interest payment. This is essential for a fair transaction since the seller must be compensated for the time during which they have held the bond and earned interest. Understanding accrued interest is crucial for accurate pricing and valuation of bonds in the market.