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I've been learning about bonds' dirty prices from this video. The dirty price is the clean price plus any money that has theoretically accumulated since the last coupon payment. I'm wondering why the dirty price doesn't include all coupons that have been received since the bond was issued. Doesn't the seller of the bond need to be compensated for those coupons in some way?

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    The seller already received any and all coupons that came due and were paid before 'now' (and also after they acquired the bond, if that was later than issuance). Interest that is accrued but not yet paid can only correspond to the next scheduled coupon. Commented Nov 26, 2023 at 3:17
  • As far as I understand, the bond holder does not actually receive any coupon payments until maturity. Therefore, if I have a bond that is set to mature in two years and I sell it after holding for one year, I will not be compensated for the interest that has already accumulated.
    – Enter4343
    Commented Nov 26, 2023 at 3:24
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    @Enter4343 — that’s a zero-coupon bond. Ordinary bonds pay dividends every six monhs. Commented Nov 26, 2023 at 15:16
  • en.wikipedia.org/wiki/Coupon_(finance) Commented Nov 26, 2023 at 23:21
  • @dave_thompson_085 I think that comment + the clarification from Pete is the full answer, you should post as such. Commented Nov 27, 2023 at 15:36

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Doesn't the seller of the bond need to be compensated for those coupons in some way?

The seller of the bond already received the previous coupons. The accrued interest is just the interest that has accrued since the previous coupon.

As far as I understand, the bond holder does not actually receive any coupon payments until maturity.

You may be thinking of zero coupon bonds, which do not have a fixed coupon amount, but are instead sold at a discount, and the "interest" is accounted for by the difference between the purchase price and the redemption price. Since there is no actual interest accrued for these bonds, the "dirty price" is actually the same as the clean price, which should still be at a discount depending on the yield that the bond seller wants to achieve. In other words, these bonds are sold for more than they were bought for, and the lack of coupon interest is made up for in the increase in value.

Given that bond issuers have a lot of freedom to determine the terms of their bonds, there may be bonds issued that accrete coupons instead of paying them out, but they would be very rare, and the calculations for dirty price would be more complex. But even in that case, the accrued interest would be the interest accrued since the previous coupon was processed, and the clean price would reflect the coupons that have already been added.

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