1. What is Accrued Interest?

Accrued interest is the interest that has accumulated on a loan or financial obligation but has not yet been paid or received. It represents the amount of interest earned or incurred over a specific period of time.

2. How Does the Calculator Work?

The calculator uses the simple accrued interest formula:

Where:

• \( \text{Principal} \) — The initial amount of money
• \( \text{Rate} \) — Annual interest rate in decimal form
• \( \text{Days} \) — Number of days interest has accrued

Explanation: The formula calculates how much interest accumulates daily based on the annual rate, then multiplies by the number of days.

3. Importance of Accrued Interest Calculation

Details: Accurate accrued interest calculation is crucial for financial reporting, bond pricing, loan accounting, and understanding the true cost of borrowing or return on investment.

4. Using the Calculator

Tips: Enter the principal amount in dollars, the annual interest rate as a decimal (e.g., 5% = 0.05), and the number of days interest has accrued. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between accrued interest and regular interest?
A: Accrued interest represents interest that has accumulated but hasn't been paid yet, while regular interest is the periodic interest payment.

Q2: Why divide by 365 days?
A: This calculates the daily interest rate based on a standard year. Some calculations use 360 days for simplicity.

Q3: Does this calculator work for compound interest?
A: No, this calculates simple accrued interest. Compound interest requires a different formula accounting for compounding periods.

Q4: How is accrued interest used in bonds?
A: Bond buyers pay accrued interest to sellers to compensate for interest earned since the last coupon payment.

Q5: What if I know the interest rate as a percentage?
A: Convert it to decimal by dividing by 100 (e.g., 5% = 0.05) before entering.