1. What is the Dirty Price Formula?

The Dirty Price formula calculates the full price of a bond, which includes both the clean price and the accrued interest since the last coupon payment. It provides the actual amount an investor pays when purchasing a bond between coupon payment dates.

2. How Does the Calculator Work?

The calculator uses the Dirty Price equation:

Where:

• \( P_{dirty} \) — Dirty Price of the bond
• \( P_{clean} \) — Clean Price of the bond
• \( AI \) — Accrued Interest since last coupon payment

Explanation: The formula simply adds the accrued interest to the clean price to determine the total amount payable for the bond.

3. Importance of Dirty Price Calculation

Details: Accurate dirty price calculation is crucial for bond trading as it represents the actual transaction price. It ensures fair compensation for the seller for the interest accrued during their holding period.

4. Using the Calculator

Tips: Enter the clean price and accrued interest in the same currency units. Both values must be non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between clean price and dirty price?
A: Clean price is the bond price excluding accrued interest, while dirty price includes both the clean price and accrued interest.

Q2: When is dirty price used in bond trading?
A: Dirty price is used for actual settlement amounts when bonds are traded between coupon payment dates.

Q3: How is accrued interest calculated?
A: Accrued interest is typically calculated based on the number of days since the last coupon payment, using the appropriate day count convention.

Q4: Why is it called "dirty" price?
A: The term "dirty" refers to the price that includes the accrued interest component, as opposed to the "clean" price which excludes it.

Q5: Do all bonds have both clean and dirty prices?
A: Yes, all bonds that pay periodic interest have both clean and dirty price calculations when traded between coupon dates.