Final answer:
The clean price is the bond price excluding accrued interest, while the dirty price includes it; generally, you pay the dirty price, which can exceed the clean price. Market interest rates influence whether the bond price is above or below face value, by affecting its present value.
Step-by-step explanation:
The statement that the price you actually pay to purchase a bond will generally exceed the clean price can be true or false, depending on whether the bond is purchased right after the interest payment or before the next interest payment is due. The clean price of a bond is the price that excludes any accrued interest. When you buy a bond between interest payment dates, you will typically pay the clean price plus accrued interest, which is known as the dirty price. As interest accrues over time, the dirty price will generally exceed the clean price until the next interest payment is made.
However, in terms of the present value of expected future payments, if the market interest rates increase, the present value of future payments decreases, which means you would expect to pay less than the face value for the bond. Conversely, if market rates decrease, the bond's price rises above its face value to reflect the higher relative yield.