Clean Price

As opposed to dirty prices? A clean price refers to the price of a bond that does not include any accrued interest since the bond was issued or since the last coupon (meaning interest) payment.

And yes, there is a term "dirty price" and no, it's perfectly safe to google that term at work. Well, maybe not perfectly safe, but pretty safe. The dirty price includes the accrued interest. A dirty price should not be confused with a “dirt bond,” which is a bond secured by land values.

Sometimes, a bond owner decides to sell the bond before it reaches its maturity date. Therefore, it’s important for the buyer to know whether accrued interest on the bond is included in the price or not. Some bond markets include the interest, making it a “dirty price,” while others add it in after the trade is completed, listing the bond under the clean price.

So let’s say Betty Bondseller wants to sell a New York State bond she purchased a few years ago. She could quote the price as a percentage of its face value (called par value) or in dollars. So she decides to quote it at 95, indicating that it is 95% of the bond’s par value. If the bond’s par value is $1,000 then the clean price of the bond is $950 since it does not include accrued interest. Next Betty needs to calculate the accrued interest, so she can add that in to the sale price of the bond. With the $1,000 par value, let’s say the coupon (interest) rate is 6% paid quarterly and 30 days have passed since the last coupon payment. With 90 being the average number of days in a quarter, the accrued interest would be calculated as 6% x (30/90) x ¼ = 0.49. This gets added in to give the dirty price.