ACCRUED BOND Meaning and
Definition
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An accrued bond refers to a debt instrument, typically issued by a corporation, municipality, or government, that has generated interest, dividends, or other income since its last interest payment or issuance. The concept of accruing means accumulating or gradually building up over a period of time. In the context of bonds, it signifies the gradual accumulation of interest that has been earned but not yet paid out to the bondholder.
When an investor purchases an accrued bond in the secondary market, they assume the obligation to receive the accrued interest that has accumulated since the last interest payment. Therefore, they will receive both the principal and the accrued interest on the next interest payment date. The amount of accrued interest is determined based on the number of days since the last payment, the face value of the bond, and its stated interest rate.
Accrued bonds are typically traded on the bond market, and the accrued interest is well-defined in the terms of the bond. However, it is important for investors to consider the accrued interest when buying or selling bonds, as it can significantly impact the purchase price or yield of the bond.
In summary, an accrued bond refers to a debt instrument that has generated interest, dividends, or other income since its last interest payment or issuance. The accrued interest represents the accumulation of interest since the last payment, and investors who buy or sell accrued bonds have the responsibility to account for this accrued interest.
Etymology of ACCRUED BOND
The word "accrued" comes from the Latin word "accrescere" which means "to grow" or "to increase". It was derived from the combination of the prefix "ad-" meaning "to" and "crescere" meaning "to come forth" or "to grow".
The word "bond" comes from the Old English word "bund" or "bendan" which means "to bind". It was derived from the Proto-Germanic word "bindanan" with the same meaning.
When these two words are combined to form "accrued bond", it refers to a bond that has accumulated or grown over time. The bond has "accrued" interest, meaning the interest payments have increased or accumulated since its issuance.
