# What is the clean price?

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The distinction between “clean price” and “dirty price” is about the so-called accrued interest. Accrued interest can, as the name suggests, accrue – and it is therefore important to distinguish between the two price types.

Explanation:

For example, bonds can have fixed interest payment dates. If you now buy the bond on any given day, interest has of course already accrued since the last interest payments.

The seller of the bond is entitled to this interest, since the buyer only acquires the right to receive interest from the date of purchase. The interest from the previous period is therefore owed to the previous owner (i.e. the seller) of the bond.

Now you can distinguish between the clean price and the dirty price: If a price is indicated as clean price, this so-called “accrued interest” is not indicated. It is purely the market value of the bond that is indicated.

The dirty price, on the other hand, includes the already accrued interest. If you buy the bond on a specific day, there will be a markdown equal to the accrued interest.

## Other terms

For the quotation of a bond on the stock exchange, there are also other terms that can be used as synonyms for clean price and dirty price:

The ex coupon quotation corresponds to the definition of the clean price.

The cum coupon quotation corresponds to the dirty price. It is occasionally also referred to as a flat quotation.

Shares are always quoted cum coupon, bonds usually ex coupon. This should avoid unnecessary price fluctuations for bonds. Since these price fluctuations then result only from the issue of accrued interest, they are not “real” price fluctuations, but an unavoidable, always occurring phenomenon of varying magnitude, depending on the date.

## Calculation of accrued interest

There is a very simple formula for calculating accrued interest. This is the formula:

Nominal value x interest rate x days/360 = accrued interest

The nominal value of the stock is the clean price, and the number of elapsed days since the last interest payment date makes it easy to calculate the exact accrued interest. The sum of clean price + accrued interest is then the dirty price.

## Negative accrued interest

Accrued interest can also be negative. This happens if a seller sells the bond very shortly before the next interest payment date, as the interest up to the interest payment date is then usually still included in the seller’s credit.

In this case, the buyer would lose the interest for the remaining days until the interest payment date. For this reason, the seller is charged negative interest, which then goes to the buyer of the bond. This practically compensates the buyer’s interest claims, which he/she would otherwise not receive, until the next interest payment date.

## Accrued interest pot

A term that should also be known is the accrued interest pot. In order for the capital yields tax to be calculated correctly, the accrued interest paid and received by a custody account customer during the calendar year must also be taken into account.

In order to be able to consider all accrued interest in the calendar year together, it is mathematically added to the accrued interest pot, regardless of whether it has been received or paid.