Clean Price Vs Dirty Price of a Bond | Accrued Interest Explained

[@RyanOConnellCFA]

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[@girish-d9p]

absolute legend ! i hope i clear the exams one day and be as knowledgable as you

[@RyanOConnellCFA]

Thank you! And you will get there, it just comes down to consistent learning over years day-by-day! That is all there is to it

[@eugeniocentrella4107]

How would you calculate the PV without the PV button on the calculator? Please show the steps of the formula

[@tommy5203]

Thank you very much Ryan! - I didn't understand the difference between dirty and clean price (from my lectures and books) till now 😄

[@RyanOConnellCFA]

Glad it helped Tommy!

[@joshuaalfred8307]

Cheers Ryan, quick question. Do we use the clean or dirty price when calculating yield to maturity? Also how do we account for fees when determine the yield or return with YTM?

[@RyanOConnellCFA]

Hey there! When calculating YT)The main reason we exclude accrued interest when calculating Yield to Maturity (YTM) is due to standardization and simplicity. Clean price is the price of a bond without any consideration for the accrued interest. This method gives a clear picture of the bond's value exclusive of any short-term fluctuations due to interest accrual. When you buy or sell a bond in the secondary market, the accrued interest is settled separately between the buyer and the seller, outside of the bond's clean price. Regarding fees, I think they should be factored in as a cost reducing the total return of the bond. Depending on the specifics, these costs can be accounted for directly by reducing the price paid for the bond, thus increasing the yield, or indirectly by reducing the cash flows received., we typically use the clean price, which excludes accrued interest. The dirty price includes accrued interest, but it's not commonly used for YTM calculations.

[@manthanshah7876]

Why did the value of 1027.23 not equal 1025.90 in the latter part of the video. Both are clean prices of the bond?

[@ryanzkp]

Hi thank you for the video, the only question i hv is what’s the difference bettween PV and Clean price then, thanks

[@RyanOConnellCFA]

My pleasure! The dirty price is the present value of the bond. The clean price is the present value of the bond excluding accrued interest

[@sarmadwaseem8349]

@@RyanOConnellCFA He is asking what's the difference between "PV" (that you used in calculation of Dirty price) and the "clean price" since both don't have accrued interest?

[@patrick07124]

in the dirty price formula, the [t/T] is as a power whereas in the accrued interest formula, the [t/T] is as a factor of multiplication why is there this difference?

[@ShubhamSharma-sy6vx]

Bro do you have any course on all the financial instrument swaps cds and irs

[@RyanOConnellCFA]

Hey! I currently have a video on interest rate swaps: kzbin.info/www/bejne/eqPPfJ2JfJaJbNU I plan to make a video on credit default swaps in the future

[@LiftUp22]

Quick question: shouldn’t T only account for the # of trading days in a year?

[@mathematician1234]

No, that's not the pricing convention here. # trading days in a year would be maybe 253 (or close to that), but bond pricing uses day-count conventions of A/365, 30/360, 30/365, etc., where A is actual. The market-determined YTM is quoted to you based on the convention for _that_ bond. So, when you use that YTM in other formulae, you have to follow _that_ day-count convention.

[@davidtheuniversaldataboy8527]

How do I calculate without financial calculator

[@RyanOConnellCFA]

Are you wondering about the order to punch the numbers in?

[@YuhanLuo-ow8hr]

Thank you!

[@RyanOConnellCFA]

You're welcome!

[@Ice-2706]

Why do profeesional bond traders quote the clean (flat) price and NOT the dirty (full) price?

[@Ice-2706]

@@neptunefinance great explanation

[@breadb4meat]

Thank you i was having a mental breakdown over bonds today

[@RyanOConnellCFA]

Happy to be of service! This stuff can be convoluted at first

[@dmitriyf1]

Strange. Both - formula and online calculator gives present value less then future value. Why you have bigger?

[@RyanOConnellCFA]

Hey there, present value should only ever be higher than future value if interest rates are negative. I do not have present value higher than future value in this video. Which part of this video do you think you are seeing this in?