28 Nov
Clean Price & Dirty Price – Bond Pricing | CA Final SFM
In finance, the dirty price is the price of a bond including any interest that has accrued since issue of the most recent coupon payment. This is to be compared with the clean price, which is the price of a bond excluding the accrued interest.
What is the ‘Dirty Price’…?
A dirty price is a bond pricing quote referring to the price of a coupon bond that includes the present value of all future cash flows, including interest accruing on the next coupon payment. The dirty price is how the bond is quoted in most European markets, and it is the price an investor pays to acquire the bond.
What is the ‘Clean Price’…?
Clean price is the price of a coupon bond not including any accrued interest. A clean price is the discounted future cash flows, not including any interest accruing on the next coupon payment date, and immediately following each coupon payment, the clean price will equal the dirty price. The clean price is calculated by subtracting the accrued interest from the dirty price.
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