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Glossary

AI (accrued interest)

Value measured in currency units and characterizing the part of coupon yield “accrued” from the beginning of the current coupon period. The bond coupon is paid on periodic basis, usually quarterly, annually or semiannually. Respectively, upon redemption of another coupon and start of a new coupon period, the coupon begins to “accrue”.

Importance of this figure calculation results from the fact that on most bond markets they are traded at so called “clean price”, which excludes accrued interest (hereinafter – AI) (although there are some exceptions, like on the Ukrainian bond market bonds are quoted at full price). Therefore, in order to calculate the full price to be paid by the bonds buyer to the seller (also known as “dirty” price) we need to add AI to clean price.

It is calculated by the following formula:



Where

AI - accrued coupon yield t
C – size of current coupon (in currency units)
t [0]– current date
t[с-1] – the coupon period starting date
t[c] – the next coupon redemption date

For example, if the size of a coupon equals USD50, coupon period starting date – April 1, Coupon redemption date – October 1, then on September 1 AI would equal 50*153/183=41.80

The size of AI can be also expressed not through the coupon size in currency units, but through the coupon rate expressed as percentage (usually this kind of formulas can be found in an issue prospectus). In this case AI formula will look like this:



Where:

N - par
C(%) – current coupon rate (% p.a. )
t [0]– current date
t[с-1] – coupon period starting date
B – allocation base (usually 365 days, sometimes 360 days)

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