Pricing of Municipal Securities and Mathematical Calculations
Chapters in this video
- 0:00 The leftover pizza analogy for accrued interest
- 1:32 30/360 day count and the government bond trap
- 2:53 Defaulted and income bonds trade flat
- 3:38 OID versus market discount tax treatment
- 4:16 Why premium amortization is never a deductible loss
- 4:58 Maturity, coupon, and price volatility
- 5:33 Yield to worst quoting rules
- 6:05 Taxable equivalent yield worked example
- 7:39 Rapid-fire exam recap
What this video covers
- How accrued interest works on municipal bonds under the 30/360 day count, and why corporates use it but U.S. government bonds use actual/actual
- When a bond trades flat (defaulted bonds, income bonds) and what that means for accrued interest at settlement
- Why original issue discount (OID) accretes as tax-exempt interest while market discount accretes as taxable ordinary income
- Why premium amortization on a tax-exempt muni is never a deductible loss, and how it adjusts cost basis to par at maturity
- The volatility shortcut: longest maturity plus lowest coupon equals maximum price sensitivity to rate changes
- Yield to worst quoting rules under the Municipal Securities Rulemaking Board (MSRB): yield to call on premium bonds, yield to maturity on discount bonds
- How to compute taxable equivalent yield (TEY), including the in-state triple-tax-free adjustment when combining federal and state brackets
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