Things You'll Need:
- Spreadsheet program
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Step 1
Calculate the methodology of accrued interest by knowing what counting convention the bond issuer uses. Accrued interest is calculated by knowing the number of days in the year that the issuer recognizes and the number of days in the month. Use the on-line calculator recommended in the Resources section, or understand and create your own accrued interest spreadsheet program below.
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Step 2
Enter the face value of the bond in column one and the coupon rate in column two on a spreadsheet. In column three, multiply columns one and two. The result is the total interest due on the bond in a year. In column four, divide the result in column three by two. This represents the interest accrued and paid every 6 months.
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Step 3
Add values for columns five to eight. For municipal and corporate bonds, the month count assumes that every month has 30 days regardless of the actual count and that a year is made up of 12 months. In column five, insert the number of months since the last interest payment and multiply by 30. In column six, insert the number of days in the present month. Use column seven to add the totals in columns five and six. In column eight, divide column seven by the number of days in a semi-annual coupon, that is, 180 days. Multiply this percentage by the sum of column in column four. This is the accrued interest.
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Step 4
Realize that U.S. Treasuries compute interest slightly differently. They count the actual number of days in each month and assume a 365 day year. Leap day is always ignored. In this case, use the first four columns from the above example and in column five sum the total number of days since the last interest payment. Create a column six that calculates the number of days for the semiannual payment. Divide this sum in column five by column six and insert in column seven. Multiply, in column eight, the result of column seven times column four. The result is the accrued interest.
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Step 5
Know that there are other forms of accrued interest calculations such as the actual days each month and the actual number of days in the year. These calculations are more likely to be found in short term notes and commercial paper since the effect of ignoring days will distort the very short maturity yields.
