Canadian Securities Course (CSC) Practice Exam

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What is accrued interest in the context of bonds?

Interest paid at maturity
Interest paid in advance
Interest that has built up but has not yet been paid
Interest paid to stockholders

The correct answer is: Interest that has built up but has not yet been paid

Accrued interest refers to the amount of interest that has accumulated on a bond since the last interest payment date. It is not paid at maturity (option A), as that is when the bond principal is repaid. Interest is not paid in advance (option B) as that would be considered a prepayment and is not the standard practice for bonds. Interest is also not paid to stockholders (option D), as bonds are a form of fixed income securities and not equity. Therefore, the correct answer is C - accrued interest is the interest that has built up, but has not yet been paid to the bondholder.