Definition of Accrual rate:
An accrual rate is the interest rate applied to a financial obligation, such as bonds, mortgages, and credit cards. The accrual rate is the rate at which interest is accrued, which is often daily for credit cards. However, the accrual rate for paid vacation time and pensions is the rate at which vacation time or benefits are earned. .
Specified annual interest rate on a mortgage.
Knowing the rate at which a financial obligation accumulates interest is important for understanding its price and, ultimately, its value. For example, in the case of bonds, since a bond’s price is the sum of all its future cash flows—including principal and interest, the price at which it changes hands will include any interest accrued (but not yet paid.) Similarly, when calculating the payoff amount for a mortgage or other debt, accrued interest amounts must be added to the principal balance outstanding.
How to use Accrual rate in a sentence?
- Accrual rates play a vital role in calculating the true value of a financial obligation.
- Accrual rates vary based on what type of financial obligation they are applied to.
- An accrual rate is the percentage interest applied to the principal of a financial obligation.
- Accrual rates are often used to calculate the sum of paid sick time, vacation time, and pensions.
Meaning of Accrual rate & Accrual rate Definition