A flat bond can be defined as a financial instrument that is sold or traded among the investors without having an accrued interest rate associated with the bond. Accrued interest in actual is the portion or fraction of the bond coupon payment that the investor yields and earns during specific periods during the entire term of maturity of the bond. There are three major reasons associated with the bonds don’t having accrued interest rate along with the bonds. These reasons are described as under:-
- There is no interest that is due on the bond at this point of time or term and this means that the due date of interest is not yet approached in accordance with the issue and the sale date of the bond
- The bond is in default that means the issuer of the bond is default and there is no money with the issuer to pay the bond holder as an interest
- The bond was settled among the issuer and the bond holder at the same date at which the interest was paid so there is no more interest due on the bond right now.
if the interest accrued since the last coupon payment is included in the price of the bond during the settlement of the bond among the issuer and the holder the price of the bond is them then termed as the “Dirty Price”. If the price of the settlement is considered as clean that means it settlement price don’t include the interest accrued on since the last coupon payment.
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