Clean Price
You might have seen this term on newspapers or Reuter website. This is a financial term used in market. Clean Price is the price of a bond without any interests. This means clean prices are the prices excluding all kinds of interest accumulated since last bond coupon payment. To get a clear cut idea terms ‘bond’ & ‘coupon’ needs an explanation.
A bond is a signed agreement issued by the lender to borrower which contains the repayment time period, debt amount, annual interest rate.
A coupon is the term used to specify annual interest rate over the bond.
Dirty price is a price of and which includes all the interests.
Clean Price = Dirty Price – Accumulated Interests.
Points to Note
- It doesn’t change frequently over time, means it is a more stable price.
- Since it is stable, this price (clean) is used by the magazines and share market watchers.
- Immediately after the coupon payment date clean price will be equal to dirty price
Where is it used?
Mainly in share market and trading stocks. Since the clean price doesn’t fluctuate it can be used to specify the market values. America is a country which uses clean price in trading, whereas in Europe they use dirty price. India uses both clean price as well as dirty price depending on market fluctuations.
Trading price may be clean price, but the settlement price is always dirty price (including all interests).
