What is a 'Clean Price'

Clean price is the price of a coupon bond not including any accrued interest. A clean price is the discounted future cash flows, not including any interest accruing on the next coupon payment date, and immediately following each coupon payment, the clean price will equal the dirty price. The clean price is calculated by subtracting the accrued interest from the dirty price.

Clean Price = Dirty Price - Accrued Interest

BREAKING DOWN 'Clean Price'

The country in which the coupon-paying bond is traded will influence how the bond is quoted. In the United States, it is the market convention to quote a bond in terms of its clean price; in other markets, bonds are more commonly quoted in terms of their dirty price.

Bonds are quoted as either a percentage of their par value, or face value, or in dollar terms. For example, if a bond is quoted at 98, this indicates that it is 98% of the bond's par value. Therefore, if the bond's par value is $1,000, the bond price is $980. This is the clean price of the bond since it does not reflect the accrued interest on the bond. Although bonds are typically quoted in terms of the clean price, investors pay the dirty price unless the bond is purchased on the coupon payment date.

Accrued Interest Calculation

On a bond's interest payment date, the accrued interest is reset to zero. If the next coupon payment is not due or the bond has not expired, the accrued interest is added to sale price of the bond. For example, assume a $1,000 par value bond has a coupon rate of 5%, which is paid quarterly, and 30 days have passed since the last coupon date. Therefore, the accrued interest is calculated to be 0.42, or (5% x (30/90) x (1/4)). 90 days represents the average number of days in a quarter.

Clean Price Calculation

For example, assume a corporate bond has a par value of $1,000 and has a coupon rate of 6%, which is paid on a semi-annual basis on Jan. 1 and July 1. The bond is sold for a dirty price of 93, or 93% of par value, on March 2. To calculate the clean price, the number of days between the coupon dates is calculated to be 60 days, excluding the day that the bond was sold. Therefore, the accrued interest is calculated to be 1.00, or (6% x (1/2) x (60/180)). Therefore, the clean price of the bond is calculated to be 92.00, or 93 - 1.00, which is equivalent to $920.

RELATED TERMS
  1. And Interest

    And interest is a slang phrase used when quoting the price of ...
  2. Accrued Interest Adjustment

    Accrued interest adjustment is the extra amount of interest that ...
  3. Bond Discount

    Bond discount is the amount by which the market price of a bond ...
  4. Coupon Rate

    Coupon rate is the yield paid by a fixed income security, which ...
  5. Zero-Coupon Bond

    A zero-coupon bond is a debt security that doesn't pay interest ...
  6. Accrued Market Discount

    Accrued market discount is the gain in the value of a discount ...
Related Articles
  1. Investing

    Comparing Yield To Maturity And The Coupon Rate

    Investors base investing decisions and strategies on yield to maturity more so than coupon rates.
  2. Investing

    The Basics Of Bonds

    Bonds play an important part in your portfolio as you age; learning about them makes good financial sense.
  3. Investing

    Corporate Bonds: Advantages and Disadvantages

    Corporate bonds can provide compelling returns, even in low-yield environments. But they are not without risk.
  4. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  5. Investing

    5 Reasons to Invest in Municipal Bonds When the Fed Hikes Rates

    Discover five reasons why investing in municipal bonds after the Fed hikes interest rates, and not before, can be a great way to boost investment income.
  6. Investing

    Why Bond Prices Fall When Interest Rates Rise

    Never invest in something you don’t understand. Bonds are no exception.
RELATED FAQS
  1. How do debit spreads impact the trading of options?

    Find out what it means when a bond has a coupon rate of zero and how a bond's coupon rate and par value affect its selling ... Read Answer >>
  2. How can I calculate a bond's coupon rate in Excel?

    Find out how to use Microsoft Excel to calculate the coupon rate of a bond using its par value and the amount and frequency ... Read Answer >>
  3. If I buy a $1,000 bond with a coupon of 10% and a maturity in 10 years, will I receive ...

    See how fixed-income security investors can expect to use coupon rates on semi-annual payments if the bond or debt instrument ... Read Answer >>
  4. What are the risks of investing in a bond?

    Are you thinking of investing in bond market? Learn more about bond market investment risk, including interest rate risk, ... Read Answer >>
Trading Center