Accrued Interest: Accrued interest is the interest that accumulates on a fixed-income security between one interest payment and the next. The amount is calculated by multiplying the coupon rate, also called the nominal interest rate, times the number of days since the previous interest payment. Interest on most bonds and fixed-income securities is paid twice a year. On corporate and municipal bonds, interest is calculated on 30-day months and a 360-day year. For government bonds, interest is calculated on actual days and a 365-day year. When you buy a bond or other fixed-income security, you pay the bond’s price plus the accrued interest and receive the full amount of the next interest payment, which reimburses you for the accrued interest payment you made when you purchased the bond. Similarly, when you sell a bond, you receive the price of the bond, plus the amount of interest that has accrued since you received the last interest payment. On a zero-coupon bond, interest accrues over the term of the bond but is paid in a lump sum when you redeem the bond for face value. However, unless you hold the bond in a tax-deferred or tax-exempt account, you owe income tax each year on the amount of interest that the government calculates you would have received, had it been paid.

 

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Accrued Interest: Accrued interest is the interest that accumulates on a fixed-income security between one interest payment and the next. The amount is calculated by multiplying the coupon rate, also called t . . . View Full Definition

And Interest: An indication that the buyer will receive accrued interest in addition to the price quoted for a bond.

Compound Interest: When the interest you earn on an investment is added to form the new base on which future interest accumulates, it is compound interest. For example, say you earn 5% compound interest on $10 . . . View Full Definition

Net Interest Cost (NIC): The total amount of interest that will be paid on a debt obligation by a corporate or municipal bond issuer.