Dirty price
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The dirty price of a bond is the sum of a bond's clean price and the accrued interest since the previous coupon date. The dirty price is simply the present value of a bond's future cash flows. The dirty price is also called the "full price."
The clean price is, in effect, the price of the bond on the first day of the coupon period. The dirty price of a bond is its price including accrued interest.[citation needed] Bond prices are usually quoted "clean" (without accrued interest), and then settled "dirty" (with accrued interest). In other words, the dirty price contains an additional cost that was not included in the quoted price.
When a bond is sold in the secondary market at some time between interest payment dates, the bond seller is entitled to payment of the accrued interest since the last payment date[citation needed]. This compensates the bondholder for the amount of interest that has accumulated between the previous coupon date and the settlement date.
The dirty price is calculated as follows:
<math> \sum_{i=1}^{n} \frac{\frac{C_i}{n\times 100}}{\left(1+\frac{YTM}{n\times 100}\right)^i} +\frac{F}{\left(1+\frac{YTM}{n\times 100}\right)^n} </math>
where:
- Ci = coupon payment in period i
- F = face value or redemption value at maturity
- YTM = yield to maturity or redemption yield as a decimal
- n = number of coupon periods
[edit] See also
Bond market | |
|---|---|
| Types of bonds by issuer | |
| Types of bonds by payout | |
| Derivatives | |
| Pricing | Bond valuation · Par value · Coupon · Clean price · Dirty price · Accrued interest · Day count convention |
| Yield analysis | |
| Credit and spread analysis | |
| Interest rate models | |
