[2] The clean price more closely reflects changes in value due to issuer risk and changes in the structure of interest rates.
Use of the clean price also serves to differentiate interest income (based on the coupon rate) from trading profit and loss.
A corporate bond has a coupon rate of 7.2% and pays 4 times a year, on 15 January, April, July, and October.
The standard broker valuation formula (incorporated in the Price function in Excel or any financial calculator, such as the HP10bII) confirms this; the main term calculates the actual (dirty price), which is the total cash exchanged, less a second term which represents the amount of accrued interest.
The actual price is a present value amount determined by applying the market rate of interest to the bond’s remaining cash flows.
Many people are confused by the fact that bonds are sold for “price plus accrued interest”.