Amortization of Premium and Accretion of Discount

What this video covers

• Why premium amortization on tax-exempt municipal bonds is mandatory and non-deductible, and how straight-line amortization walks basis down to par
• How to calculate annual amortization using premium divided by years to maturity, and which basis to use for gain or loss on an early sale
• What original issue discount (OID) accretion is, how it steps basis up to par, and why OID on a municipal bond is treated as tax-free interest
• The critical exam distinction between OID (tax-free, at original issuance) and market discount (taxable as ordinary income, secondary market purchase)
• Why longer maturity and lower coupon both produce greater price volatility, and why zero-coupon bonds have the maximum volatility of any bond with the same maturity
• How the pull to par works, and why a bond's price is inevitably drawn toward its par value as maturity approaches