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Basic Question 7 of 9
The clean price of a bond is defined as ______.
B. the full price plus accrued interest
C. the agreed upon price plus accrued interest
D. the agreed upon price
A. the agreed upon price without accrued interest
B. the full price plus accrued interest
C. the agreed upon price plus accrued interest
D. the agreed upon price
User Contributed Comments 5
| User | Comment |
|---|---|
| IvanTG | Either the previous question or this one is incorrect... Based on the last two answers we have three equations: Full (dirty) price = Agreed upon price + Accrued Interest Full (dirty) price = Clean price + Accrued Interest Clean price = Agreed upon price - Accrued Interest This doesn't add up! Full price = Clean price .... which is incorrect I think here we should have D as the correct answer. Any thoughts? |
| Urlacher23 | Here's the way it works... Bond prices are often quoted using the clean price. In other words, this is the current market value of the bond or the 'clean price'. In an actual transaction, however, interest accrues and the seller must be compensated. When you add the accrued interest, the value is the 'full' or 'dirty price'. This represents the actual price being paid. Bonds can be sold either way... typically, however, the bond is sold using the actual market value of the bond plus accrued interest and thus using the full price. |
| yesandy11 | A and D are exactly the same. The agreed upon price does not include accrued interest (see IvanTG's equation). So, saying the agreed upon price, or agreed upon price without accrued interest means the same thing. |
| michlam14 | i don't think D is specific enough. in the text book, it says dirty price is the agreed upon price plus the accrued interest, and clean price is agreed upon price, also referred to simply as price. Either way, the agreed upon price doesn't mean anything unless we add or subtract something to/from it. i suppose that's why we refer to ex-coupon ie agreed upon price EXcluding the coupon, or cum coupon, ie Agreed upon price WITH the coupon. I'm not an expert but logically this seems to make sense to me |
| johntan1979 | Both questions are correct. You need to really grasp the concept to get both right. For this question, technically, both A and D are correct, but if you have to choose between A and D, which would you think is more accurate and specific? |
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Learning Outcome Statements
calculate a bond's price given a yield-to-maturity on or between coupon dates
CFA® 2024 Level I Curriculum, Volume 4, Module 6.