Pricing of Municipal Securities and Mathematical Calculations

What this video covers

• How municipal bonds are quoted as a percentage of par, and why a price of 102 means $1,020 per $1,000 par
• How accrued interest is calculated using the 30/360 day count (30 days per month, 360 days per year), and why the buyer pays the seller at settlement
• How premium amortization works on a tax-exempt municipal bond, and why the amortized premium is not deductible for tax purposes
• The critical distinction between original issue discount (OID) and market discount: OID accretes tax-free, but market discount accretes as taxable ordinary income
• Why bonds with longer maturities and lower coupons have the highest price volatility, and why zero-coupon bonds sit at the extreme
• How the yield seesaw works for premium versus discount bonds, and when yield to call (YTC) or yield to maturity (YTM) must be quoted as yield to worst
• The taxable equivalent yield (TEY) formula: tax-exempt yield divided by (1 minus the marginal tax rate), and when to combine federal and state rates