Dirty price
From Wikipedia, the free encyclopedia
If 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.
Bond prices are usually quoted 'clean' (See Clean price), that is, without accrued interest, and then settled 'dirty', that is, with accrued interest. So you can think of the dirty price as being dirty because it contains an additional cost that was not mentioned in the quoted 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.
The dirty price is calculated as follows:
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
The dirty price is the price the buyer pays for the bond.
