Which one of the following is the quoted bond price A Par va

Solution

Option B is correct : Clean price

It is normal price of the bond which we actually calculate using the YTM of bond and other variables. Difference between dirty price and clean price? Interest accrued.

Let\'s say a bond has current quoted price of $900. Coupon rate is 10%, Par value is $1000. Interest is paid semi - annually and next interest is due in 2 months.

So, interest has accrued for 4 months. The current bondholder deserves price to be factored for the interest of 4 months.

Interest accrued = $1000 x (10% / 2) x 4 / 6 = $33.33

Dirty price = $900 + $33.33 = $933.33

This is the price you actually pay for. So, Clean price is the quoted price and dirty price is the invoice price that is computed after taking into account the interest accrued on the bond.