What exactly is a dirty price? I’ve seen it pop up and thought it was just the price with hidden charges or something. But I think it’s related to accrued interest?
Exactly, man. Clean price is the price of the bond without accrued interest. It’s just the base price. Dirty price is the actual price you pay, and it includes the interest that’s been building up since the last coupon. So when you buy a bond mid-cycle, you’re effectively paying the seller for the interest they’ve earned up to that point, even though you won’t see it till the next coupon date.
wait so when I paid a little more than the listed price it wasn’t a mistake? I just paid for the interest I was buying into?
Got it now. So I’m not losing money, it’s just the timing of when I’ll get that interest. Makes sense!
Exactly. You’ll get that interest back on the next coupon date, plus the actual interest for the time you hold the bond.