How Ex-Coupon Dates Affect Bond Cash Flows and Prices

Summary

The document explains which coupon an investor receives when trading a bond near a scheduled payment. On an ex-coupon date, the buyer does not receive the imminent coupon; the next coupon in the buyer’s cash-flow stream is the following one. This distinction matters when constructing discounted cash flows, since including a coupon that belongs to the seller would overstate the value attributable to the buyer.

The answer also connects coupon entitlement to observed prices. A bond’s dirty price includes accrued interest, while commonly shown clean prices exclude accrued interest, so the effect may be less visible in clean-price charts. The discussion gives a conceptual explanation rather than a full pricing convention or a worked calculation. Exact entitlement rules and dates can depend on the bond’s market conventions, which the brief answer does not detail.

Key ideas

• A buyer trading on an ex-coupon date does not receive the imminent coupon.
• The buyer's first coupon cash flow is the next coupon after the one currently due.
• Coupon entitlement affects which payments belong in a bond valuation.
• Dirty prices include accrued interest, while clean prices exclude it.

Tags

# Accrued Interest on a bond


# Accrued Interest on a bond












If I were to price a bond on one of its coupon payment days, does that day's coupon payment gets added to the cashflows, if so, do we just discount that by 1 (same day)? ie, C1*df1 + C2*df2 + ... Should C1 be that day's coupon payment, or the next period's coupon payment?

## Answer by Attack68 (score 1)

https://quant.stackexchange.com/a/40047

There is the concept of ex-div on stocks and bonds. This is short for ex-dividend (or ex-coupon). If you transact a bond or a stock on an ex-div date then, as the investor, you will not receive the dividend or the coupon which is imminently due to be paid, usually within a few a days or weeks. Instead, as an investor, the first coupon you will receive is the one after that.

This is why you see stock prices fall on ex-div dates since they reflect the value of the different cashflows for investors. It is also apparent in the dirty price of bonds, however most bond price charts are clean prices and already exclude the accrued interest so this is not noticeable on those charts.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.