Final answer:
The accrued interest of a bond, which is a component of the bond's full (dirty) price, depends on the coupon rate. It is calculated based on the amount of time that has passed since the last interest payment. The accrued interest does not directly depend on the current yield or market price of the bond.
Step-by-step explanation:
The accrued interest part of the full (dirty) price of a bond is dependent on the coupon rate of the bond, which is usually paid semi-annually but can vary in frequency. This interest is the amount earned on the bond since the last payment and until the transaction date. It is not independent of time as it accumulates with the passage of time. The accrued interest also does not depend directly on the current yield or the bond's market price, but is intrinsically linked to the amount of interest the bond is set to pay, according to its coupon rate, over a certain period.
The price of a bond is always the present value of a stream of future expected payments. This includes both the repayment of the face value at maturity and the interest payments through the bond's life. Thus, when you buy or sell a bond in between interest payment dates, the full price you pay (the dirty price) includes the accrued interest for the period since the last interest payment was made.