Lesson 9: Municipal Bond Arithmetic
|
|
|
On the radio our Bond of the Day would sound like this: "We own and offer, subject to prior sale and/or change in price, $100,000 New York State Thruway 5s of 2026 @ a 4.40% yield to a par call in 2018 and 4.61% yield to maturity. Price $104,546 (approximately 104 5/8 )." Here’s what it all means in dollars and cents. |
If you buy a bond on anything other than an interest payment date, your confirmation will show an adjustment for the interest accrued on the next coupon, before you entered the picture, which the previous owner is entitled to. Since the bond will be in your possession when the coupon comes due, you reimburse the previous owner for the amount accrued before you bought it.. (Just as someone buying a bond from you would have to reimburse you for interest already accrued while the bond was in your hands.)
WHO WOULD KNOWINGLY PAY
109 FOR A BOND WHEN ALL THEY GET BACK IS 100?
NEXT: Lesson 10 - Choices! Choices! |