Pricing of Municipal Securities and Mathematical Calculations

What this video covers

• How municipal bonds are quoted as a percentage of par, and how to convert a quote like 102 into the actual dollar price of $1,020 per $1,000 face value
• The 30/360 day count convention for municipal and corporate accrued interest, and why U.S. government bonds use actual/actual instead
• How to compute accrued interest from the last coupon payment date up to, but not including, settlement date
• Why premium amortization reduces cost basis but is NOT deductible as a loss on tax-exempt municipal bonds
• The critical distinction between original issue discount (OID), which accretes tax-free, and market discount, which accretes as taxable ordinary income
• The legal requirement to quote yield to worst, with yield to call (YTC) lower than yield to maturity (YTM) for premium callable bonds
• The taxable equivalent yield (TEY) formula: tax-exempt yield divided by one minus the marginal tax rate, including when to combine federal, state, and local rates for in-state triple-tax-free bonds
• How to reverse the TEY formula to find the break-even tax bracket when given both a municipal yield and a taxable yield