Three prices are involved in every secondary trade and only one of them is on the screen.
The full price, also called the dirty price or the invoice price, is the present value of the remaining cash flows at the settlement date. It is what actually gets paid, and it rises steadily through a coupon period as the next coupon approaches.
Accrued interest is the seller's share of the coupon the buyer will receive: the period coupon multiplied by the accrual fraction from day count conventions. The seller held the bond for part of the period and is entitled to that part.
The flat price, also called the clean price or the quoted price, is the full price minus accrued interest. It is what dealers quote, what appears on screens and what gets compared across bonds.
Quotes are flat because the flat price is the only one of the three that is not sawtoothed. A full price climbs through a coupon period and drops by the coupon amount on the coupon date, so a chart of it looks like a saw blade even for a bond whose yield has not moved at all. Stripping out accrued removes that mechanical pattern and leaves a series that moves only when the market's view of the bond moves. Two bonds with different coupon dates are comparable on flat prices and not on full ones.
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Worked example: pricing an Indian debenture
The arithmetic, on the module's Indian debenture. The remaining cash flows are five annual coupons of ₹84,000 and ₹10,00,000 of principal, the first of them 258/365 of a year away, and at a market yield of 9.10% they discount to a full price of ₹998,001.246417. Accrued interest on an actual/actual basis is ₹24,624.657534. The flat price is ₹973,376.588882, which is 97.337659 per 100, and that is what a screen would show.
The relationship runs the other way too, and that is how the opening paradox works. Two desks that agree on a flat price of 97.337659 but disagree about the day count will send different money: ₹9,98,00,124.64 under actual/actual against ₹9,97,87,658.89 under 30/360 on a hundred debentures.
The quoted price was never in dispute. The convention was.
What about ex-coupon and defaulted bonds?
Three details close this out. The settlement date, not the trade date, is what the accrual runs to, and settlement cycles differ by market and instrument. A bond that has gone ex-coupon pays the next coupon to the seller rather than the buyer, and accrued interest turns negative for those few days, which some markets handle by convention and others by a separate ex-dividend price. A defaulted or non-accrual bond trades flat of accrued, meaning the buyer pays no accrued interest at all, because nobody expects the coupon to be paid. A quoted price on a distressed bond is therefore a full price wearing a flat price's clothes, and reading it as a clean price overstates what you are getting.
{
"skill": "Extracting a complete, structured instrument description from a term sheet or offer document",
"use": "Paste the coupon, redemption, day-count and contingency sections of a real offer document and ask the model to populate a fixed fourteen-field table, quoting the clause each field came from, then build the cash-flow table from that table alone.",
"tools": ["A chat assistant with a long context window, for the extraction pass", "A PDF text extractor, so the model reads the document rather than a summary of it", "A spreadsheet or notebook to rebuild the cash-flow table independently"],
"prompt": "From the attached offer document, fill this table and quote the exact clause reference for every row: issuer legal entity; seniority and security; face value per unit; total issue size; coupon rate and type (fixed, step-up, deferred, PIK, floating, index-linked); coupon frequency and payment dates; day-count convention; business-day convention; first coupon date and any short or long first period; maturity date; call schedule (dates and prices); put schedule (dates and prices); sinking-fund schedule; make-whole formula including the reference security and spread. Where the document is silent on a row, write SILENT and do not infer a market default.",
"verify": "Three checks, all of them yours. First, re-read the coupon and redemption clauses yourself and confirm every extracted figure against the document text, because an extraction model will happily supply a market-standard day count the document never states and there is no way to see that in the output. Second, rebuild one coupon period's accrued interest by hand under the extracted day-count convention and confirm it matches the issuer's own published coupon amount or the first interest payment notice. Third, if the model wrote a number where the document says SILENT, treat the whole extraction as unverified and start again: a fabricated convention is the failure mode here, and it is silent.",
"diy": "You must be able to compute an accrual fraction under 30/360, actual/actual and actual/360 by hand, and decompose a settlement amount into full price, accrued and flat, without a tool. The gate rewards exactly that, because the extraction is worthless if you cannot tell whether it is right.",
"market": "IN"
}