Identifier: C2T1L4 | Revision: 2026-10-26

Decision and objectives

A dealer quotes 98.40 but asks for more than 98.40% of face. Determine whether accrued interest explains the difference before treating the discrepancy as a hidden fee. Clean price excludes the accrued coupon amount; dirty price includes it. Neither term alone tells you the investor's entire cash debit because fees may be additional.

Objectives: Reconcile clean and dirty price; Convert quotation units into settlement cash; Separate accrued interest from investment profit.

Prerequisites: C2T1L3.

Mechanics

Between coupon dates, the seller has earned part of the next coupon under the contractual accrual convention. A buyer who will receive the full next coupon normally compensates the seller through accrued interest at settlement. This is a price allocation between counterparties, not a separate issuer coupon. The buyer must check entitlement rules, including any ex-coupon period in the actual issue.

Borsa's quotation procedure distinguishes clean, dirty and settlement prices. Inflation-linked securities can require an additional index adjustment; do not apply this lesson's unindexed arithmetic blindly. The rule is always to express clean price and accrual in matching units and on the same settlement date.

Price and return drivers

For a regular fixed coupon under the supplied convention, accrued per 100 = coupon per period per 100 × elapsed accrual days / total coupon-period days. Dirty per 100 = clean per 100 + accrued per 100. Cash before fees = nominal × dirty / 100. Coupon amount uses nominal principal, not the clean market value.

Clean price is useful for seeing market repricing without the mechanical daily accrual. Dirty price is needed for funding and a total-return ledger. A fall in dirty price immediately after a coupon can be offset by the cash coupon; assessing price alone would invent a loss.

Worked case

Hypothetical unindexed TRY bond: face TRY 250,000; 10% nominal annual coupon paid semiannually; clean ask 98.40 per 100; 60 elapsed days of a stated 180-day regular period; buyer receives the next coupon. No ex-coupon adjustment. Coupon per 100 = 10 / 2 = 5. Accrued = 5 × 60 / 180 = 1.666667 per 100. Dirty = 100.066667. Principal-price component = TRY 246,000; accrued cash = TRY 4,166.67; gross settlement = TRY 250,166.67. Add hypothetical purchase commission TRY 300: debit TRY 250,466.67, before financing and any tax.

At the next coupon, issuer cash is 250,000 × 0.10 / 2 = TRY 12,500. Of this, TRY 4,166.67 economically reimburses the amount paid to the seller. Receiving the full coupon does not make all of it profit since purchase.

Adverse case

Suppose the investor must sell immediately at clean bid 97.60 with the same accrued amount and a TRY 300 sale fee. Gross sale cash = 250,000 × (97.60 + 1.666667) / 100 = TRY 248,166.67. Net proceeds = TRY 247,866.67. Compared with the purchase debit, the loss is TRY 2,600: TRY 2,000 spread plus TRY 600 fees. Accrual cancels because both trades share a value date. If dates differ, it must be recalculated.

Practical use

Write settlement date beside the quote and ask whether it is clean or dirty, bid or ask. Check how much nominal can actually trade at that price. Reconcile price, accrued amount and commission separately on the confirmation; custody and foreign exchange costs may sit elsewhere. Tax treatment of purchased accrual requires the actual tax framework and records; this example calculates cash only and excludes tax rather than calling the accrued amount tax-free.

Decision boundaries

Use dirty cash for a funding limit and total-return calculation. Use clean prices for market-price comparison only after checking currency, indexation and units. Do not add accrued interest twice to a dealer quote already labelled dirty. Decline to approve the debit if quote type or coupon entitlement is missing; a guessed convention cannot support a cash commitment.

Practice and references

Exercise: hypothetical TRY 80,000 face, 8% annual coupon paid semiannually, clean price 101.20, 45 of 180 days elapsed, fees TRY 80; no indexation or tax. Answer: accrued per 100 = 4 × 45 / 180 = 1; dirty = 102.20; gross cash = TRY 81,760; debit = TRY 81,840. Next full coupon is TRY 3,200, including TRY 800 paid as accrued to the seller.

Takeaway: quoted price, settlement price and account cash debit answer different questions.

Reference guide: domestic-government-bond, dirty-price, accrued-interest, Accrued interest, Dirty price, Clean price.

Next: C2T1L5. Topic test: C2T1.

Primary sources (checked 2026-10-26; changing terms require a publication recheck): Borsa Istanbul announcement amending Debt Securities Market Procedure — 9.1.5; Annex 1; quotation and settlement price distinctions; Debt Securities Market data reporting and acceptance formats — Fields 29–36.

Shared reference guide