Formula and method
Price equals discounted coupons plus discounted face value, using yield divided by coupon frequency as the periodic rate.
Worked example
A 1,000 face-value bond with a 5% coupon and 5% yield is worth 1,000 on a coupon date, regardless of remaining whole coupon periods.
Pricing between coupon dates
Choose “Between coupons” and enter settlement and maturity dates. Coupon dates are counted back from maturity to find the previous coupon (PCD) and the next coupon (NCD). With A = days from PCD to settlement, E = days in the coupon period and DSC = days from settlement to NCD, the fraction w = DSC ÷ E sets how far away the next coupon is.
Dirty (full) price = Σ C ÷ (1 + y/m)^(k − 1 + w) + F ÷ (1 + y/m)^(N − 1 + w), summed over the N coupons left. Accrued interest = C × A ÷ E is the part of the next coupon the seller has earned. The quoted clean price is dirty price − accrued interest; the buyer pays the dirty price.
Day-count conventions
30/360 US: every month counts as 30 days and the year as 360; a 31st becomes the 30th, with end-of-February rules. It is usual for US corporate, agency and municipal bonds. E = 360 ÷ m.
Actual/Actual: actual calendar days elapsed ÷ actual days in the coupon period. It is used for US Treasury notes and bonds.
Actual/360: actual days elapsed, with a 360-day year (E = 360 ÷ m). Actual/365: actual days elapsed, with a 365-day year (E = 365 ÷ m).
Worked example: between coupons
Microsoft's PRICE example: settlement 15 February 2008, maturity 15 November 2017, 5.75% semiannual coupon, 6.5% yield, 30/360. The previous coupon was 15 November 2007, so A = 90, E = 180, w = 0.5 and N = 20. The dirty price is 96.07186 per 100, accrued interest is 2.875 × 90 ÷ 180 = 1.4375, and the clean price is 94.63436.