Bonds

The income source backing a special tax bond issue could be:

Cigarette taxes Sales taxes Business taxes Ad valorem taxes do not back special tax bond issues. Ad valorem taxes back general obligation bonds. The definition of a special tax bond is one which is not backed by ad valorem taxes, but rather by another tax source (such as excise, sales, business or income taxes).

complex products

Collateralized Mortgage Obligation Reverse Convertible Note Structured Product

The manager of a pension plan would most likely invest in which of the following debt issues?

Corporate Bonds Government Bonds Pension plans are "tax qualified" retirement plans. Earnings on securities held are tax deferred; so there is no benefit to investing in municipals, which have lower interest rates because their interest income is exempt from Federal income tax. Investments would be made in corporate and government bonds, both of which have higher interest rates because their interest income is taxable by the Federal government.

An ETN offers an investor all of the following benefits

lack of liquidity risk tax-efficiency access to returns of foreign investments

The bondholder of a municipal bond issue is the

lender of the bond proceeds The "bondholder" of a bond issue is the party that is owed the debt service on the bonds. This is the "legal" name for the lender or creditor.

A "sinking fund call" is a(n):

mandatory call

An investor buys a bond at a premium. Later in the year, the bond is trading at a discount. This is termed:

Depreciation When an asset decreases in value, this is termed depreciation.

In 2022, a customer buys 5 GM 10% debentures, M '42. The interest payment dates are Feb 1st and Aug 1st. The current yield on the bonds is 11.76%. The bonds are callable as of 2031 at 103. The bond is trading:

at a discount If the bond's current yield (11.76%) is higher than the coupon yield (10%), the bond is trading at a discount. In order for the yield to rise above the stated fixed coupon rate, the price of the bond must drop in the market.

The nominal yield of a bond will:

remain unchanged as bond prices fluctuate The nominal yield is the stated rate of interest as a percentage of par value. It does not change as bond prices move. However, the current yield and yield to maturity will be affected by changes in bond prices.

junk bond ratings

BB CCC Any security below a BBB rating is considered to be speculative - commonly known as "junk" issues. Thus, bonds with a BB or CCC rating are considered junk bonds.

Banker's Acceptances are:

drafts on banks used to finance imports and exports negotiable securities

Ford Motor Company has issued 8% convertible debentures, convertible at a 50:1 ratio. Currently the debenture is trading at 110. The stock is trading at 21. What is the conversion price of the stock?

$20 The bond is convertible into common at a 50:1 ratio, based on the par value of the bond. The conversion price formula is: Par Value of Bond -------------------- = Conversion Price Conversion Ratio $1,000 --------- = $20 50

A customer buys 10M of Allied Corporation 8 1/4% debentures, M '34, at 90 on Thursday, Oct 9th. The interest payment dates are Feb. 1st and Aug. 1st. The trade settled on Monday, October 13th. The amount of the next interest payment will be:

$412.50 10M stands for 10 - $1,000 bonds (M is Latin for $1,000) = $10,000 face amount of bonds. The bonds pay 8 1/4% interest annually. 8 1/4% of $10,000 is $825 annual interest. Since payments are made semi-annually, $412.50 is amount of each payment.

A customer buys 5M of 3 1/2% Treasury Bonds at 101-16. How much will the customer receive at each interest payment?

$87.50 "5M" means that 5-$1,000 bonds are being purchased (M is Latin for $1,000). Annual interest on the bonds is 3.5% of $5,000 face amount equals $175.00. Since interest is paid semi-annually, each payment will be for $87.50. Notice that the fact that the bond is trading at a premium is irrelevant - the interest payment is based on the stated interest rate times par value.

A 10 year 4 3/4% Treasury Note is quoted at 95-11 - 95-15. The note pays interest on Jan 1st. and Jul. 1st. A customer buys 10M of the notes. Approximately how much will the customer pay, disregarding commissions and accrued interest?

$9,546.88 "10M" means that the customer is buying $10,000 par value of the notes (M is Latin for $1,000). A customer will buy at the ask price, which is 95 and 15/32nds = 95.46875% of $10,000 par = $9,546.88.

A 9%, $1,000 par corporate bond is trading at $1,100. What is the current yield?

$90 ------ = 8.18% $1,100 Annual Interest ----------------- = Current Yield Market Value

When quoting bonds on a yield basis, the difference between a bond priced at a yield of 5.45 and a bond priced at a yield of 5.55 is:

10 Basis Points One basis point = .01%. The difference between 5.45 and 5.46 = .01%, or one basis point. In this case, the difference between 5.45 and 5.55 = .10%, or 10 basis points.

In 2022, a customer buys 1 PDQ 10%, $1,000 par debenture, M '37, at 115. The interest payment dates are Jan 1st and Jul 1st. The nominal yield on the bond is:

10.00% $100 (Annual Interest) ------------------------- = 10% (Nominal Yield) $1,000 ( Par)

In 2022, a customer buys 5 GM 10% debentures, M '30, at 85. The interest payment dates are Feb 1st and Aug 1st. The bonds are callable as of 2026 at 103. The nominal yield on the bonds is:

10.00% $100 (Annual Interest) ------------------------- = 10% (Nominal Yield) $1,000 ( Par)

A bond's yield moves from 5.00% to 6.00%. The yield has increased by:

100 basis points Basis points measure yield change. 1 basis point is .01%, so 100 basis points is 1%. If a bond's yield has moved by 1 point (as in this example), this is the same as a 100 basis point move. Do not mix up basis points with price points. If a bond's price moves from, say, 95 to 96, this is a movement in price from 95% of $1,000 par ($950) to 96% of $1,000 par ($960). Thus, a 1 point price move on a bond is 1% of par value, which is a $10 move.

Which of the following would be a quote for a railroad bond?

101 1/4 A railroad bond is a corporate bond. Corporate bonds are quoted on a percentage of par basis in 1/8ths. 101 1/4 = 101.25% of $1,000 par = $1,012.50 per bond.

In 2022, a customer buys 5 GM 10% debentures, M '42, at 85. The interest payment dates are Feb 1st and Aug 1st. The bonds are callable as of 2031 at 103. The current yield on the bonds is:

11.76% $100 -------- = 11.76% $850 Annual Interest ------------------------ = Current Yield Bond Market Price

A customer buys 5M of 3 1/4% Treasury Bonds at 99-31. The current yield of the Treasury Bond is:

3.25% The customer buys the bonds at 99 and 31/32s = 99.96875% of $1,000 = $999.6875 (the fact that $5,000 face amount of bonds were purchased is irrelevant, since the formula is a percentage). The formula for current yield is: Annual Income ----------------- = Current Yield Market Price $32.50 (per $1,000 face amount) ----------------------------= 3.25% $999.6875 (per $1,000 face amount) Since this price $999.6875 is so close to par, you get essentially the same yield.

Interest on a corporate bond accrues on a:

30/360 basis Interest on corporate bonds accrues on an arbitrary 30-day month / 360-day year basis.

A municipal dealer quotes a 4 year, 4% term revenue bond at 98. The yield to maturity is:

4.55% Annual Interest Rate + Annual Capital Gain ------------------------------------------------ = YTM (Discount Bond) (Bond Cost + Redemption Price) / 2 This bond has a coupon rate of 4% = 4% of $1,000 par = $40 of annual income. The bond is purchased at 98% of $1,000 par = $980; and will mature at $1,000 in 4 years, Thus, the $20 capital gain is earned over 4 years for an annual gain of $20 / 4 = $5 per year. The bond is purchased at $980 and matures at $1,000, for an average value of $980 + $1,000 / 2 = $990.

A municipal dealer quotes a 2 year, 8% term revenue bond at 106. The yield to maturity is:

4.85% $80 + ($60 Premium / 2 years to maturity) ----------------------------------------------- = 4.85% ($1,060+ $1,000) /2

In 2022, a customer buys 1 GM 8%, $1,000 par debenture, M '37, at 110. The interest payment dates are Jan 1st and Jul 1st. The yield to maturity on the bond is:

6.98% $80 - ($100 Premium / 15 years to maturity) ----------------------------------------------- = 6.98% ($1,100+ $1,000) /2

In 2022, a customer buys 1 PDQ 10%, $1,000 par debenture, M '37, at 115. The interest payment dates are Jan 1st and Jul 1st. The current yield on the bond is:

8.70% Annual Interest ------------------ = Current Yield Market Value $100 ------ = $8.70% $1,150

A customer buys 1 GE 8%, $1,000 debenture at 85. The bond will mature in 15 years. Interest payment dates on the issue are Jan 1st and July 1st. The yield to maturity on the bond is:

9.73% $80 + ($150 discount / 15 years to maturity) ----------------------------------------------- = 9.73% ($850 + $1,000) /2 Annual Interest Rate + Annual Capital Gain ------------------------------------------------ = YTM (Discount Bond) (Bond Cost + Redemption Price) / 2

Which of the following would be a quote for a manufacturing company bond?

99 1/2 A manufacturing company bond is a corporate bond. Corporate bonds are quoted on a percentage of par basis in 1/8ths. 99 1/2 = 99.50% of $1,000 par = $995.00 per bond.

When comparing Fannie Mae certificates to Ginnie Mae certificates,

Ginnie Mae certificates are rated slightly higher than Fannie Mae certificates Fannie Mae certificates will have a slightly higher yield than Ginnie Mae certificates Since Ginnie Mae certificates are guaranteed by the U.S. Government, they are rated slightly higher than Fannie Mae certificates. In the same sense, though, since Fannie Mae certificates have a bit more risk (they are NOT guaranteed directly by the U.S. Government), they will have a slightly higher yield than Ginnie Mae certificates.

Long-term negotiable certificates of deposit are subject to

Interest rate risk Call risk Reinvestment risk Marketability risk

Eurodollar bonds?

Interest received from the bonds is not subject to U.S. taxation The bonds are purchased only by foreigners

In a corporate liquidation, the priority of claim to corporate assets is:

Mortgage bond holders, unpaid wages and taxes, debenture holders, preferred stockholders The priority of claim to corporate assets in a liquidation is: Secured creditors, unpaid wages and taxes, trade creditors, unsecured bondholders, preferred stockholders, common stockholders.

Short sales rarely occur in the trading market for which of the following securities?

Municipal bonds

"PSA" stands for:

Prepayment Speed Assumption

What risk is unique to holders of mortgage backed pass through securities?

Prepayment risk Pass-through certificates are mortgage-backed securities that represent ownership in a pool of underlying mortgages and that pass through the monthly mortgage payments to the certificate holders. If the homeowners prepay their mortgages because interest rates are declining, these are "passed-through" to the holders, who then must reinvest the proceeds at lower current rates. This is "prepayment risk" and is essentially a variation on call risk, but here there are no specified potential call dates in the bond offering. This is a "difficult to quantify" risk and is only associated with pass-through securities. Pass through securities have interest rate risk - if market interest rates rise, their value falls. If the pass-through is not backed by the U.S. Government (only Ginnie Maes are directly government backed), then they have some level of credit risk. Finally, any long-term fixed income security making periodic payments has reinvestment risk. If interest rates are falling over the lifetime of the investment, the periodic payments are reinvested at lower and lower rates - reinvestment risk.

Regarding the Student Loan Marketing Association (Sallie Mae)

Sallie Mae is a privatized agency Sallie Mae stock is listed and trades "Sallie Mae" is the Student Loan Marketing Association. Sallie Mae is an agency that is "privatized." Sallie Mae stock is listed and trades on NASDAQ.

the following corporate obligations are NOT secured?

Subordinated debenture Commercial paper Debenture A secured bondholder has a lien on a specific asset of the company - such as securities given as collateral in the form of a collateral trust certificate. A debenture and subordinated debenture (a second layer of debentures issued after the first debenture offering of a company, where the second layer of debentures will be paid after the first layer - thus, they are "subordinate" to the first layer of debentures) are promises to pay without any liens on corporate assets. Commercial paper is a short term IOU and is only backed by the issuer's promise to pay.

When comparing a PAC tranch to a TAC tranche:

TAC tranches have the same level of prepayment risk TAC tranches have a higher level of extension risk Companion classes are "split off" from the Planned Amortization Class (PAC) and act as buffers absorbing prepayment and extension risk prior to this risk being applied to the PAC tranche. The PAC, which is relieved of these risks, is given the most certain repayment date. The Companion, which absorbs these risks first, has the least certain repayment date. A Targeted Amortization Class (TAC) is like a PAC, but is only buffered for prepayment risk by the Companion; it is not buffered for extension risk. Thus, A TAC has the same level of prepayment risk as the PAC; but the TAC has a higher level of extension risk than the PAC.

Reports of corporate bond trades are made to

TRACE as soon as practicable but no later than 15 minutes after execution TRACE is FINRA's Trade Reporting and Compliance Engine. It reports trades of corporate, government and agency bonds. Any OTC dealers trading these bonds must report each trade to TRACE "as soon as practicable," but no later than 15 minutes after execution. TRACE disseminates the trade report immediately. RTRS stands for Real Time Reporting System. It reports trades of municipal bonds.

Ford Motor Company has issued 8% convertible debentures, convertible at a 12.5:1 ratio. Currently the debenture is trading at 90. The stock is trading at $72.

The conversion price is $80 The parity price of the common stock is $72 The conversion ratio is given as 12.5 to 1 - each bond is convertible into 12.5 shares of common stock, based upon the bond's par value for a conversion price of $1,000 / 12.5 = $80 per share. If the bond is now trading at 90, or $900, the common stock's parity price is $900 / 12.5 = $72. Here, since the common is trading at that price, the stock and bond are trading at parity.

In a municipal bond contract, a "covenant of defeasance" would allow the issuer to:

advance refund the issue under the terms specified in the bond contract

A convertible debenture is convertible into common at $40 per share. If the market price of the bond rises to a 5 point premium over par,

The conversion ratio is 25:1 The parity price of the stock is $42 The conversion ratio is established when the bond is issued, and is par value divided by the conversion price. In this case, the conversion price is set at $40 per share, so the conversion ratio is $1,000 par / $40 conversion price = 25:1 (25 shares per bond). If the bond moves to a 5 point premium over par, its new price will be 105, or $1,050 per bond. For the common stock to be valued at parity to the bond, the price per share must be $1,050 / 25 shares per bond = $42 per share parity price.

bonds will exhibit the greatest price volatility

The longer the expiration, the more volatile a bond's price movements The lower the coupon, the more volatile the bond's price movements, with the lowest coupon being "0." The longer the duration, the longer it will take for an investor to get his or her money back and longer term bonds are more volatile. So the higher the duration number, the greater the bond volatility, and duration is often used as a measure of bond price volatility. 0% coupon bond with a 9 year maturity 7-year bond; 0% coupon; 7% yield; duration of 7.00

A municipal issuer would call an issue for

The proceeds of the issue were never expended due to legal obstacles The facility built with the proceeds of the issue has been destroyed in a flood Interest rates have fallen sharply since the issuance of the bonds Substantial funds have accumulated in the issuer's surplus account

regarding repurchase agreements effected between the public and government securities dealers?

The public customer is the lender of monies The government dealer is the seller of the government securities

market index linked CDs?

There can be a penalty applied to the principal amount of early withdrawals of funds The annual rate of return may be capped to an amount that is lower than the actual index return A market index linked CD is FDIC insured

Municipalities would issue tax exempt commercial paper for

To smooth out collections of funds that are normally subject to seasonal fluctuations To meet a temporary cash shortage due to unforeseen extraordinary expenses To provide construction period financing that will be permanently financed by a future bond sale Municipal commercial paper is not very popular. Most municipalities finance short term needs through BANs (Bond Anticipation Notes), TANs (Tax Anticipation Notes), RANs (Revenue Anticipation Notes) and TRANs (Tax and Revenue Anticipation Notes). However, commercial paper could be used by a municipality to finance short-term cash shortages caused by slow tax collections or unforeseen extraordinary expenses (these could also be financed by tax anticipation notes). Also, commercial paper could be used for an interim construction loan, because when a building is under construction, the long term financing may not yet be in place (of course, the municipality could also finance the construction through a CLN - construction loan note). Commercial paper cannot be used for long term financing such as a bond refunding. Remember, commercial paper is a short term promissory obligation - not long term.

regarding short term negotiable certificates of deposit?

Trading occurs in the secondary market They are issued by banks

the following securities will trade without accrued interest (trade "flat")?

Treasury Bills Banker's Acceptances Treasury Receipts

Which of the following does not trade "flat" ?

Treasury Bonds Treasury Bills are short term original issue discount obligations, with the discount earned being the "interest." Treasury Receipts and Treasury STRIPS are essentially zero-coupon obligations. Because all of these obligations do not make periodic interest payments, they trade "flat" - that is, without accrued interest. Treasury Bonds pay interest semi-annually, so they trade with accrued interest.

Most of the value of a bond is established by the present value of the last payment The longer the maturity of a bond, the greater the bond's price volatility

True Statements

The deeper the discount, the more volatile the bond's price movement in response to interest rate changes Discount bonds with long maturities are more volatile than ones with short maturities

When bonds are trading at a large discount As a general rule, the deeper the discount, the more volatile the bond's price movements in response to market interest rate changes. The deepest discount bond that can be purchased is a "zero coupon" bond. Such a bond has the most volatile price movements. Also, the longer the maturity, the more volatile the bond's price movements in response to market interest rate changes.

How are Treasury Notes quoted?

Whole and Fractional Treasury Notes and Bonds are quoted as a percentage of par value, with each "whole" point movement representing 1% of $1,000 par or $10. The minimum price increment is 1/32nd of 1%, so it is a fraction of par.

If a bond is purchased at a premium

Yield to call is lower than the yield to maturity Yield to maturity is lower than the current yield

The amount by which the par value of a municipal bond exceeds the purchase price of the bond is termed the

discount If par value is higher than the purchase price, then the bond is selling for less than par. This is the bond's discount.

Variable Rate Bond

bond does NOT have interest rate risk A variable rate bond has an interest rate that resets periodically to the market rate of interest (weekly, monthly, quarterly, semi-annually). Because the interest rate moves to the current market rate, the price stays right around par. Any variable rate security has no interest rate (market) risk. A high coupon bond has lower market risk than a low coupon bond, but the risk still exists for this bond. Finally, long maturity bonds are more susceptible to market risk than short maturity bonds.

Bonds with a put feature benefit the:

bondholder A put feature allows the bondholder to "put" the bonds back to the issuer after a stated time period (say 10 years). Such bonds are issued when interest rates are very low, and there is a general expectation that rates will rise. An issuer can have a hard time selling bonds to long-term investors at current low rates, because if rates start to rise, the value of those bonds will drop - and long maturity bonds will drop a lot! To make the issue attractive to investors, the issuer can include a "put" option on the bonds - where the holder can put the bonds back to the issuer at par after a stated time period. Thus, if rates do rise, the bondholder is protected. This is an advantage to the bondholder. The issuer, on the other hand has just used a chunk of cash to pay those bondholders who exercised the put option. If it needs to replenish those funds, it will now have to issue bonds at higher current market rates.

The obligor on a municipal bond issue is the

borrower of the bond proceeds The "obligor" on a bond issue is the party having the obligation to pay the debt service on the bonds. This is the "legal" name for the borrower or debtor.

Bonds with the lowest price volatility will be ones with the highest coupon rates Bonds with the highest price volatility will be ones with the lowest coupon rates

effect of interest rate movements on bond price volatility The bond with the lowest price volatility will be the one with the highest coupon rate. Bonds with low coupon rates exhibit greater price volatility. Thus, to minimize price volatility due to interest rate movements ("interest rate risk"), high coupon bonds are more appropriate than low coupon bonds.

The yield to maturity of a bond:

increases as bond market prices decline Since both the Annual Interest and Annual Capital Gain are fixed, as the cost of the bond falls, the Yield to Maturity must rise. or as the cost of the bond rises, the Yield to Maturity must fall.

As interest rates rise, the price of long term bonds falls faster than that of short term bonds To avoid market risk, a customer would invest in bonds with short term maturities

market risk for bondholders the risk of rising interest rates forcing the price of a bond to drop. As interest rates rise, the price of a long term bond falls faster than that of a short term bond. To avoid market risk, a bondholder would want to invest in the shortest maturity possible.

Term corporate bonds are quoted on a:

percentage of par basis Corporate bonds are usually term bonds - all bonds of an issue having the same interest rate and maturity. Term bonds are quoted on a percentage of par basis in 1/8ths, which is the same as a "dollar" quote.

If market rates of interest decline, bonds issued at par would trade at (a):

premium A declining market rate of interest means that interest rates are dropping. If market interest rates drop, then bond prices will rise to a premium above par, and the yields on those bonds will fall.

The amount by which the purchase price of a municipal bond exceeds the par value of the bond is termed the:

premium If the purchase price of a bond is higher than par, then the bond is selling for more than par. This is the bond's premium.

Most of the value of a bond is established by the:

present value of the last payment

The proceeds of a "Build America Bond" may be used for all of the following

public buildings transportation infrastructure water and sewer projects Build America Bonds (BABs) were issued by municipalities in 2009 and 2010. They are taxable municipal bonds that get a 35% Federal interest rate subsidy and the bond proceeds must be used for capital improvements (this is part of the economic stimulus program after the 2008-2009 "great recession"). These bonds were meant to create jobs and make to it easier for municipalities to access the debt market for needed capital projects. The proceeds of BABs cannot be used to prerefund existing issues (that does not create jobs).

A corporation can redeem its debt securities prior to their maturity date by all of the following methods

purchasing outstanding debt securities in the open market tendering for outstanding debt securities at a price determined by the issuer calling outstanding securities at pre-established dates and prices A corporation cannot retire its debt prior to maturity by prepaying the bondholders - there is no such thing for corporate debt securities. There are only four ways in which a corporation can redeem its debt prior to maturity. It can purchase outstanding debt securities in the open market, which it would do if the market price of the bonds was below the call price. It can make a formal tender offer to all bondholders to buy outstanding debt securities at a price determined by the issuer. It can call outstanding securities at pre-established dates and prices. Finally, it can force conversion of convertible bonds that have appreciated in the market by calling them. Rather than tender the bonds to the issuer at the lower call price; the convertible bondholders will convert into the more valuable equivalent number of shares of common stock.

In a period of falling interest rates, a bond dealer would engage in all of the following activities

raise prices in interdealer quote publications such as Bloomberg for municipal bonds place "request for bids" in services such as Bloomberg on appreciated positions where the dealer has no current interest bid for bonds to cover previously established short positions The best answer is D. In a period of falling interest rates, bond prices will be rising. Therefore, a dealer would raise his quoted prices in Bloomberg. If the dealer has appreciated bonds that he wishes to sell, he can place "Requests for Bids" for those bonds in Bloomberg. The dealer may bid (buy) bonds that he has previously sold short to limit losses due to rising prices. To hedge existing short positions against rising prices, the dealer would buy call options, not put options. Put options are used to hedge existing long positions from falling prices.

CMO "Planned Amortization Classes" (PAC tranches):

reduce prepayment risk to holders of that tranche Older CMOs are known as "plain vanilla" CMOs, because the repayment scheme is relatively simple - as payments are received from the underlying mortgages, interest is paid pro-rata to all tranches; but principal repayments are paid sequentially to the first, then second, then third tranche, etc. Thus, the earlier tranches are retired first. A newer version of a CMO has a more sophisticated scheme for allocating cash flows. Newer CMOs divide the tranches into PAC tranches and Companion tranches. The PAC tranche is a "Planned Amortization Class." Surrounding this tranche are 1 or 2 Companion tranches. Interest payments are still made pro-rata to all tranches, but principal repayments made earlier than that required to retire the PAC at its maturity are applied to the Companion class; while principal repayments made later than expected are applied to the PAC maturity before payments are made to the Companion class. Thus, the PAC class is given a more certain maturity date; while the Companion class has a higher level of prepayment risk if interest rates fall; and a higher level of so-called "extension risk" - the risk that the maturity may be longer than expected, if interest rates rise.

If investors expect a recession, the best investment strategy would be to:

sell corporate bonds buy U.S. Government bonds When a recession is expected, there is a "flight to quality". Investors liquidate holdings that are vulnerable in a recession (low grade corporate bonds) and put the money into safe havens such as government bonds. An excess of investors are thus buying governments, pushing their yields down; and selling lower grade corporate bonds, pushing their yields up. This causes the spread between the government and corporate yields to widen.

A bond issue with a single issue date and differing maturities is a

serial bond offering A serial bond offering is one with all bonds issued on the same date, but with differing maturities.

A bond issue where the bonds have the same maturity but different dates of issuance is a:

series bond offering A bond issue where the bonds have the same maturity but different dates of issuance is a series bond issue. These are rarely issued and are used to finance long-term construction projects where all of the money is not needed at once.

The yield to maturity for a discount bond is:

stated interest rate + annual capital gain / bond average value Annual Interest Rate + Annual Capital Gain ------------------------------------------------ = YTM (Discount Bond) (Bond Cost + Redemption Price) / 2

The current yield on a bond is:

stated interest rate / bond market value Annual Interest ----------------- = Current Yield Market Value

Bonds quoted on a percentage of par basis are generally

term bonds

The maximum maturity on commercial paper is 270 days (9 months) because:

this is the longest maturity for the security to be exempt from the provisions of the Securities Act of 1933

Municipal bond traders execute transactions:

with bank dealers in the over-the-counter market with brokerage wire houses in the over-the-counter market with municipal broker's brokers