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Question

What is Accrued Interest?

Answer

Accrued Interest is the income earned on a Gilt since the last interest payment date, but not yet paid out to the holder.

When an investor sells their holding the number of days' interest owed to them is calculated and this amount has to be paid by the person buying their stock.  This is because the person holding the stock at the payment date will receive the interest payable for the entire 6 month period.

As a result someone buying a Gilt will have to pay the accrued interest in addition to the market price.  A price quoted including the interest is referred to as the 'Dirty Price'.  The accrued interest for a Gilt is calculated from the Settlement date.

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