The Dirty Price Calculator is a financial tool utilized in bond markets to determine the total price of a bond, encompassing both its current market value (Clean Price) and the accrued interest since the last coupon payment. This calculator aids investors and financial analysts in assessing the actual cost of a bond, taking into account the accrued interest since the last coupon payment.
Formula of Dirty Price Calculator
The Dirty Price calculation is straightforward:
Dirty Price = Clean Price + Accrued Interest
Where:
- Dirty Price is the total cost of the bond, including accrued interest.
- Clean Price represents the current market price of the bond.
- Accrued Interest signifies the interest accrued on the bond since the last coupon payment. It’s calculated using the following formula:
Accrued Interest = (Face Value * Coupon Rate * Days Since Last Coupon) / Days in Coupon Period
Where:
- Face Value stands for the bond’s face value.
- Coupon Rate refers to the bond’s annual coupon rate expressed as a decimal.
- Days Since Last Coupon is the number of days from the last coupon payment date to the settlement date.
- Days in Coupon Period represents the total number of days in the coupon period.
General Terms Table (Sample)
| Term | Description |
|---|---|
| Clean Price | Current market price of the bond. |
| Face Value | The nominal value of the bond. |
| Coupon Rate | Annual interest rate of the bond. |
| Accrued Interest | Interest accrued since the last payment. |
| Days Since Last Coupon | Number of days since the last coupon payment. |
| Days in Coupon Period | Total days in the bond’s coupon period. |
Example of Dirty Price Calculator
Imagine a bond with a face value of $1,000, a coupon rate of 5%, 60 days since the last coupon, and a coupon period of 180 days. If the current market price (Clean Price) is $950, the Accrued Interest can be calculated using the provided formula. Subsequently, the Dirty Price can be determined by adding the Clean Price and Accrued Interest.
Most Common FAQs
Accrued Interest represents the interest accumulated on a bond since the last coupon payment. It accounts for the interest earned by the seller and owed to the buyer during bond transactions.
The Clean Price refers to the current market value of a bond without accrued interest. Conversely, the Dirty Price includes the accrued interest since the last coupon payment, providing the total cost of the bond.