The dirty price on the other hand changes much more frequently. When the clean price changes, it is due to either economic factors such as interest rates or the credit rating of the bond issuer. The clean price is also much more stable than the dirty price. Since this price excludes accrued interest, it is always lower than the dirty price of a bond. As previously mentioned, the clean price of a bond is the price that is quoted on financial websites. The clean price of a bond excludes the accrued interest amount. Important Note: It’s worth mentioning that bond interest payments can be paid yearly, semiannually, quarterly, or in rare cases monthly. In this example, the dirty price of the bond is $970. Three months of accrued interest comes out to $10.Ĭlean price + accrued interest = dirty price Let’s assume the investor purchased the bond 3 months (90 days) before the first coupon payment The daily per diem of the interest that has been accumulated would be included in the final price of the bond. In this scenario, investors would receive $20 every six months.Īn investor looking to purchase this bond would receive a quote of $960, plus the accrued interest. The bond pays a coupon rate of 4% annually and payments are made semiannually. Let’s assume that Nike (NKE) issues a bond with a $1,000 face value and has a published price of $960. How to Calculate the Dirty Price of a Bond?ĭirty Price = Clean Price + Accrued Interest As result, the buyer’s actual price paid for the bond will be higher since the quoted price excludes the accrued interest. It’s worth noting that most financial websites quote the clean price of the bond. The dirty price is a way for the sellers to calculate the true cost of a bond because the bond has most likely accrued interest from the last coupon payment date. The dirty price of a bond will decrease on the days which the coupon payments are made and will equal the clean price since there is zero accrued interest until the next trading day. The bond price is quoted between the coupon payment dates and it will reflect the amount of the accrued interest up to the last day of the quote.Īs the coupon payment date gets closer, the accrued interest will increase each day until the payment of the coupon is made. In the field of finance, the dirty price of a bond is the price of a bond including any interest which has accrued since the issue of the most recent coupon payment.
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