Dirty Price

A dirty price is the full price of a bond that a buyer pays, equal to the quoted (clean) price plus any accrued interest since the last coupon payment. It reflects the true cash amount exchanged when a bond trades between coupon dates.

Why it matters

• Accrued interest accumulates daily between coupon payments. Buyers pay both the bond’s market price and the interest the seller earned while holding the bond.
• In many European markets bond quotes are given as dirty prices (including accrued interest). In the U.S., published quotes are often clean (excluding accrued interest), so investors must add accrued interest to determine the effective purchase cost.
• On a coupon payment date the accrued interest is zero, so the clean and dirty prices are equal.

How to calculate dirty price

Dirty price = Clean price + Accrued interest

Accrued interest is typically computed as:
Accrued interest = Coupon payment × (Days since last coupon / Days in coupon period)

For bonds with semiannual coupons, the coupon payment equals (annual coupon rate × face value) / 2. Accrued interest increases each day until the next coupon payment, when it resets to zero.

Practical example

• Face value: $1,000
• Quoted (clean) price: $960
• Annual coupon rate: 4% → Annual coupon = $40 → Semiannual coupon = $20

If the bond is bought one day before the semiannual coupon payment, the buyer must pay the clean price plus nearly the full upcoming semiannual coupon in accrued interest (about $19 in this example). The dirty price would be approximately $960 + $19 = $979. The buyer receives the full $20 coupon at the payment date, effectively reimbursing the accrued interest portion to the seller.

Implications for investors

• Always confirm whether a quoted price is clean or dirty to accurately compare costs and yields.
• When purchasing a bond between coupon dates, expect to pay the dirty price (clean price + accrued interest) plus any broker commissions.
• Yield and valuation calculations typically use clean prices, while settlement cash flows use dirty prices.

Key takeaways

• Dirty price = Clean price + accrued interest; it represents the actual cash paid on settlement.
• Accrued interest grows daily until coupon payment, when it resets to zero.
• Markets vary in quoting convention—know which price type is being used to avoid surprises at settlement.