Clean Price and Dirty Price of a Bond

Clean Price:

Bond prices were quoted by calculating the present value of all the future cash flows then one would not under stand whether the change in the price of a bond occurred because of change in the market interest rate or accrued interest. So the bond prices are quoted by deducting the accrued interest from the present value of future cash flows of the bond. This quoted price is called clean price.

Dirty Price:

Dirty price is the settlement price of a bond. It contains two components clean price and accrued interest.
Dirty Price or Settlement price = Clean Price + Accrued interest

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