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The fair price of a straight bond (a bond with no embedded option; see Embedded Option) is determined by discounting the expected cash flows Because the price is the present value of the cash flows, there is an inverse relationship between price and discount rate the higher the discount rate the lower the value of the bond When the bond is not valued precisely on a coupon date, the present value relationship as above, will incorporate accrued interest i.e. any interest due to the owner of the bond since the previous coupon date and the valuation date; see day count convention. The price of a bond which includes this accrued interest is known as the "dirty price"; the "clean price" is the price excluding any interest that has accrued. The value returned by the above formula is thus the dirty price.
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