Bonds in Default

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Chapters in this video

  1. 0:00 What default means and why interest stops accruing
  2. 2:02 Normal bond versus defaulted bond: side-by-side comparison
  3. 3:27 Income bonds and zero-coupon bonds: the other flat traders
  4. 4:20 Exam traps with corporate versus municipal and accrued interest math
  5. 5:13 Rapid-fire exam recap

What this video covers

  • Why a bond in default immediately stops accruing interest, with no exceptions
  • What "trades flat" means and why the buyer pays zero accrued interest to the seller
  • How the price of a defaulted bond reflects only recovery value, not market value plus accrued interest
  • The three-way comparison between normal bonds, defaulted bonds, and other flat-trading securities
  • Why income bonds (also called adjustment bonds) trade flat: interest is paid only if earned
  • Why zero-coupon bonds trade flat: no coupon payments exist to accrue
  • The exam trap that mixes corporate income bonds with municipal defaulted bonds, and how to avoid it

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