Unit 6.5

Relative to a newly issued bond, what begins on the dated date?

Accrual of interest

A customer purchases a municipal bond in the secondary market with a settlement date of August 1. If the next interest payment is September 1, which of the following statements regarding interest on this bond are true? 1. The bond pays interest on March 1 and September 1 each year. 2. The seller must pay accrued interest no later than settlement day. 3. Accrued interest on this bond is computed using actual days elapsed. 4. On September 1, the buyer will receive from the issuer interest for the period March 1 through August 31.

I and IV

Amortization of a municipal bond premium does which of the following? Increases cost basis Decreases cost basis Increases reported interest income Decreases reported interest income

II and IV

Which of the following statements regarding a bond trading flat is not true?

It may be traded with accrued interest

Which of the following would have the least impact in marketing a municipal bond issue?

The dated date of the issue

If a municipal bond is purchased at a discount, which of the following is true?

The discount is accreted and increases cost basis each year until maturity

An official statement has a dated date of March 1, but the first interest payment is October 15. This most likely reflects

a long coupon

Accrued interest for U.S. government bonds is computed on the basis of

actual days elapsed.

The IRS requires a municipal bondholder to use straight-line amortization for the purpose of determining the annual

decrease to a premium bond's cost basis

On Wednesday, April 22, 2020, your customer purchased a block of City Y 4% Recreation Authority term revenue bonds quoted at 22. The bond's stated interest payment dates are J/J 1. After receiving the confirmation, the customer called you and asked why there was no additional cost for accrued interest. The most likely reason for that is

the bonds are trading flat

The dated date on a municipal bond issue is

the date on which the bonds begin accruing interest.

The date on which the interest on a new municipal issue begins accruing is

the dated date

All of the following have an impact on the marketability of a block of municipal bonds except

the dated date of the bonds in the block

A municipal bond transaction is labeled T+2. This means that

the trade is settled regular way in two business days