Enter the full (dirty) price ($) and the accrued interest ($) into the Calculator. The calculator will evaluate the Flat Value.
Flat Value Formula
FV = DP - AI
Variables:
- FV is the Flat Value ($)
- FP is the full (dirty) price ($)
- AI is the accrued interest ($)
To calculate the Flat Value, subtract the accrued interest from the dirty (full) price.
How to Calculate Flat Value?
The following steps outline how to calculate the Flat Value.
- First, determine the full (dirty) price ($).
- Next, determine the accrued interest ($).
- Next, gather the formula from above = FV = DP – AI.
- Finally, calculate the Flat Value.
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
full (dirty) price ($) = 300
accrued interest ($) = 20
FAQs
What is the difference between a bond’s dirty price and its clean price?
The dirty price of a bond includes the accrued interest since the last coupon payment, while the clean price is the price of the bond without the accrued interest. The clean price is typically the quoted price of the bond.
Why is it important to calculate the flat value of a bond?
Calculating the flat value of a bond is important because it gives investors an idea of the bond’s value without the accrued interest. This is useful for comparing the intrinsic value of bonds regardless of their coupon payment schedules.
How does accrued interest affect bond investments?
Accrued interest affects bond investments by increasing the purchase price of a bond (if bought between coupon payments) but also entitling the investor to receive the next full coupon payment. This impacts the yield and the timing of cash flows from the investment.
Can the flat value of a bond change over time?
Yes, the flat value of a bond can change over time due to market fluctuations affecting the dirty price. However, the flat value calculation itself remains constant, subtracting the accrued interest from the current dirty price.
