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:
“Kings and queens who wear a suit but once, though made by some tailor or dressmaker to their majesties, cannot know the comfort of wearing a suit that fits. They are no better than wooden horses to hang the clean clothes on.”
—Henry David Thoreau (1817–1862)
“Becoming responsible adults is no longer a matter of whether children hang up their pajamas or put dirty towels in the hamper, but whether they care about themselves and others—and whether they see everyday chores as related to how we treat this planet.”
—Eda Le Shan (20th century)
“One has to have run a household before one can know the price of rice and firewood, and one has to have raised children before one can understand a parent’s love.”
—Chinese proverb.