Pricing of Municipal Securities

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Chapters in this video

  1. 0:00 The February 30-day trap that catches test takers
  2. 1:20 Term bonds use dollar price, serial bonds use basis
  3. 2:41 Accrued interest and the half-eaten pizza analogy
  4. 4:12 The 30/360 day count and why munis ignore the calendar
  5. 5:33 Short and long odd first coupons
  6. 6:21 Rapid-fire exam recap

What this video covers

  • Why term bonds are quoted on a dollar price basis as a percentage of par, and why serial bonds are quoted on a yield or basis (yield to maturity) basis
  • How to convert a dollar price quote like 98 or 102 into actual dollars per $1,000 face value
  • Who pays accrued interest at settlement: the buyer pays the seller, and why the buyer is reimbursed when the next full coupon arrives
  • The accrued interest formula: annual coupon divided by 360, multiplied by days from the last coupon up to but not including settlement
  • Why municipal and corporate bonds use the 30/360 day count convention while U.S. Treasury securities use actual/actual
  • Why February has 30 days under 30/360, and why March 1 to August 1 is exactly 150 days regardless of the real calendar
  • How short and long odd first coupons still use the 30/360 convention even when the first payment window is irregular

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