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, dirty and/or price:
“Going down for the last time, the last breath lying,
I grapple with eels like ropes—it’s ether, it’s queer
and then, at last, it’s done. Now the scavengers arrive,
the hard crawlers who come to clean up the ocean floor.”
—Anne Sexton (1928–1974)
“I’m waiting for my man
Twenty-six dollars in my hand
Up to Lexington 1-2-5
Feeling sick and dirty more dead than alive
I’m waiting for my man.”
—Lou Reed (b. 1944)
“They give us a pair of cloth shorts twice a year for all our clothing. When we work in the sugar mills and catch our finger in the millstone, they cut off our hand; when we try to run away, they cut off our leg: both things have happened to me. It is at this price that you eat sugar in Europe.”
—Voltaire [François Marie Arouet] (1694–1778)