Clean and Dirty Price
When the bond is not valued precisely on a coupon date, the calculated price, using the methods above, will incorporate accrued interest: i.e. any interest due to the owner of the bond since the previous coupon date; see day count convention. The price of a bond which includes this accrued interest is known as the "dirty price" (or "full price" or "all in price" or "Cash price"). The "clean price" is the price excluding any interest that has accrued. Clean prices are generally more stable over time than dirty prices. This is because the dirty price will drop suddenly when the bond goes "ex interest" and the purchaser is no longer entitled to receive the next coupon payment. In many markets, it is market practice to quote bonds on a clean-price basis. When a purchase is settled, the accrued interest is added to the quoted clean price to arrive at the actual amount to be paid.
Read more about this topic: Bond Valuation
Famous quotes containing the words clean and, clean, dirty and/or price:
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“Jug Jug” to dirty ears.”
—T.S. (Thomas Stearns)
“I don’t want to read about some of these actresses who are around today. They sound like my niece in Scarsdale. I love my niece in Scarsdale, but I won’t buy tickets to see her act.”
—Vincent Price (1911N)