Accrued Interest (Clean v Dirty Bond) Screencast

[mikey10011]

David,

I know that the "clean price" of a bond is its quoted price, and hence the "dirty price" (invoice price, full price = clean price + accrued interest) is what the buyer pays the seller of the bond. (The picture I like is the sawtooth visual from Bodie, Kane & Marcus' Investments textbook.)

That said I am confused by all the bond calculations in your spreadsheet
http://www.bionicturtle.com/premium/editgrid/frm_2008_bonds_accrued_interest/

that appears in your screencast
http://www.bionicturtle.com/learn/article/accrued_interest_clean_vs_dirty_price_8_min

Specifically I am trying to *conceptually* reconcile
D8 = 109.43
with the dirty price H14=111.06 and the clean price 108.06.

Thanks!

 

[David Harper CFA FRM]

Mikey,

They are in different places on the timeline. $109.43 (Cell D8) is the price at the previous coupon (it looks like about 4.5 months before settlement), at 1/1/08

Settlement (5/16/08) has its own full price - accrued = clean price. Which must be different due to timing.

But note the reconcilation at H16: the $109 compounded forward to settlement = the full price. As you'd expect, the price of the bond can be compounded forward.

Hope that helps, David