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:
“I became increasingly anarchistic. I began to find people of my own class vicious, people in clean collars uninteresting. I even accepted smells, personal as well as official. Everyone who came to the studio smelled either of machine oil or herring.”
—Margaret Anderson (1886–1973)
“Any woman who chooses to behave like a full human being should be warned that the armies of the status quo will treat her as something of a dirty joke. That’s their natural and first weapon. She will need her sisterhood.”
—Gloria Steinem (b. 1934)
“After all, it is putting a very high price on one’s conjectures to have a man roasted alive because of them.”
—Michel de Montaigne (1533–1592)