In
finance
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of f ...
, the clean price
is the
price
A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the ...
of a
bond
Bond or bonds may refer to:
Common meanings
* Bond (finance), a type of debt security
* Bail bond, a commercial third-party guarantor of surety bonds in the United States
* Chemical bond, the attraction of atoms, ions or molecules to form chemical ...
excluding any
interest
In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distin ...
accrued since bond's issuance and the most recent coupon payment. Comparatively, the
dirty price is the price of a bond including the
accrued interest
In accounting accrued interests are generally computed and recorded at the end of a specific accounting period as adjusting journal entries used in accrual-based accounting.
In finance, accrued interest is the interest on a bond or loan tha ...
. Therefore,
:
In
Bloomberg Terminal
The Bloomberg Terminal is a computer software system provided by the financial data vendor Bloomberg L.P. that enables professionals in the financial service sector and other industries to access Bloomberg Professional Services through which u ...
or
Reuters
Reuters ( ) is a news agency owned by Thomson Reuters Corporation. It employs around 2,500 journalists and 600 photojournalists in about 200 locations worldwide. Reuters is one of the largest news agencies in the world.
The agency was est ...
, bond prices are quoted using the clean price. Traders tend to think of bonds in terms of their clean prices.
Clean prices are more stable over time than dirty prices. When clean prices change, it is for an economic reason such as a change in interest rates or the bond issuer's credit quality. Dirty prices change day to day depending on the date relative to the coupon payment dates, as well as economic reasons.
Example
Price example:
XYZ Ltd. issues a bond with a $1000 face value and a $980 published price, with a coupon rate of 5% paid semi-annually and a maturity date of five years. The annual coupon payment is 5% of $1000, or $50. The investor receives a $25 coupon payment every six months until the maturity date.
In this case, $980 is the clean price of the bond. The bond price quoted to investors is $980 plus the accrued interest. Brokers quote the dirty price, found by adding the clean price and accrued interest since that day.
If the bond's last coupon payment was made on 1 June, on 1 September, the dirty price is: Clean Price + Accrued Interest (where accrued interest is the interest accumulated from 1 June to 31 August on the bond according to its coupon rate.)
The price changes continuously, as it depends on how many days have passed since the last coupon payment on the bond.
See also
*
Accrued Interest
In accounting accrued interests are generally computed and recorded at the end of a specific accounting period as adjusting journal entries used in accrual-based accounting.
In finance, accrued interest is the interest on a bond or loan tha ...
*
Bond
Bond or bonds may refer to:
Common meanings
* Bond (finance), a type of debt security
* Bail bond, a commercial third-party guarantor of surety bonds in the United States
* Chemical bond, the attraction of atoms, ions or molecules to form chemical ...
*
Dirty Price
References
Further reading
Calculation of the clean price of a bond in a cash management bond repurchase operation Bank of Canada. Retrieved 2015-11-10.
External links
Clean priceBy Investopedia
Calculate clean and dirty price of a bondby Financetrain
Bond valuation
Fixed income analysis
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