<p>There’s two prices for a bond:</p>

<ol>
<li>Invoice or dirty price: what you actually pay; and</li>
<li>the clean price, which is the dirty price less accrued interest.</li>
</ol>

<p>In market convention, the clean price is the quoted price.</p>

<p>Accrued interest starts off at \$0 at a coupon date, and then rises (roughly) linearly each day until it matches the value of a coupon at the coupon date. The exact formula is a fixed schedule that depends upon market convention.</p>

<p>If you buy a 1% annual coupon bond one day before maturity, you will probably have a clean price very close to \$100. The accrued interest will be very close to \$1, and so the dirty price would be close to \$101.</p>

<p>The deviation of the clean price from \$100 would depend on the deviation from 1% for the yield you bought it at. The exact accrued interest will depend on the daycount convention in the market.</p>

<p>In any event, people use the clean price precisely because there is a “pull to par,” we do not have to worry about the coupon when thinking about the bond price.</p>

CC BY-SA 3.0
2017-12-05T22:29:07.473Z
ok so quoted prices are clean ones... and if I want to buy a bond I have to add the accrued interest. Clean price gives me the idea i am up or down the par (in terms of yield), isn't it?

Thanks
Castore
CC BY-SA 3.0
2017-12-06T00:10:30.973Z
Yes, if you buy above (below) par, your yield is below (above) the coupon rate.
Brian Romanchuk
CC BY-SA 3.0
2017-12-05T22:06:43.737Z
2017-12-05T22:06:43.737Z
Brian Romanchuk
<p>For example: if a bond got a 1% coupon, and tomorrow is the maturity date, so tomorrow I will have 101.</p>

<p>So, in my opinion a bond price should tend to notional+coupon, because today I want this amount of money to be at par. Where I am wrong?</p>

CC BY-SA 3.0
2017-12-05T19:30:35.940Z
if I calculate by the pricing formula when it remains only the last cash flow I got

101/(1+0,01)^1=100
Castore
CC BY-SA 3.0
2017-12-05T19:43:28.860Z
for example this italian btp https://www.milanofinanza.it/quotazioni/dettaglio/btp-01-02-2018-4-5-1ac03dd?refresh_cens

or this spanish one http://www.boerse-berlin.com/index.php/Bonds?isin=ES00000123Q7
Castore
<bonds><pricing><price-theory>
Why does bond price tend to 100?
Castore
# Why does bond price tend to 100?

(Asked by: username_0 on 2017-12-05)

For example: if a bond got a 1% coupon, and tomorrow is the maturity date, so tomorrow I will have 101.

So, in my opinion a bond price should tend to notional+coupon, because today I want this amount of money to be at par. Where I am wrong?

**Tags:** bonds, pricing, price-theory

> **Comments:**
> **username_0**: if I calculate by the pricing formula when it remains only the last cash flow I got  101/(1+0,01)^1=100  
> **username_0**: for example this italian btp https://www.milanofinanza.it/quotazioni/dettaglio/btp-01-02-2018-4-5-1ac03dd?refresh_cens  or this spanish one http://www.boerse-berlin.com/index.php/Bonds?isin=ES00000123Q7  

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## 1 answers

### Answer by username_1 on 2017-12-05. Score: 3

There’s two prices for a bond:

1. Invoice or dirty price: what you actually pay; and
2. the clean price, which is the dirty price less accrued interest.

In market convention, the clean price is the quoted price.

Accrued interest starts off at \$0 at a coupon date, and then rises (roughly) linearly each day until it matches the value of a coupon at the coupon date. The exact formula is a fixed schedule that depends upon market convention.

If you buy a 1% annual coupon bond one day before maturity, you will probably have a clean price very close to \$100. The accrued interest will be very close to \$1, and so the dirty price would be close to \$101.

The deviation of the clean price from \$100 would depend on the deviation from 1% for the yield you bought it at. The exact accrued interest will depend on the daycount convention in the market.

In any event, people use the clean price precisely because there is a “pull to par,” we do not have to worry about the coupon when thinking about the bond price.

> **Comments:**
> **username_0**: ok so quoted prices are clean ones... and if I want to buy a bond I have to add the accrued interest. Clean price gives me the idea i am up or down the par (in terms of yield), isn't it?  Thanks  
> **username_1**: Yes, if you buy above (below) par, your yield is below (above) the coupon rate.  

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