Accrued Interest - Formula

Formula

The primary formula for calculating the interest accrued in a given period is: I_A = T \times P \times R

where is the accrued interest, is the fraction of the year, is the principal, and is the annualized interest rate.

is calculated as follows:

T = \frac{D_P}{D_Y}

where is the number of days in the period, and is the number of days in the year.

The main variables that affect the calculation are the period between interest payments and the day count convention used to determine the fraction of year, and the date rolling convention in use.

A compounding instrument adds the previously accrued interest to the principal each period, applying compound interest.

Read more about this topic:  Accrued Interest

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