Accrued interest is the dollar amount of interest that has accumulated on a bond since the most recent coupon payment or the dated date of the bonds.

Investors often use accrued interest calculations to help estimate how much a bond would be worth if they sold it on a given date. When one investor sells a bond, the buyer pays the seller the portion of the accrued interest that the seller is owed based on the number of days between interest payments.

Accrued interest calculations are also used when the first or last coupon payment of a bond falls after an incomplete interest period.

For example, if a bond pays interest twice a year on June 1 and December 1, most coupon payments will be for 6 months of interest earned. However, if the bonds were issued on April 1, the first payment date will occur two months after the bonds were issued. Therefore the accrued interest formula will be used to calculate the value of the first payment.

For municipal bonds, accrued interest is usually calculated on the basis of a 360-day year, which assumes that each month has 30 days.

The formula for calculating accrued interest is:

Accrued Interest = Interest Rate X Par Value X ( Number of Days / 360 )