The municipal bond news is always interesting. On July 28, 2010 the headline on Financial Times showed that “US muni bond yields approach record lows” which has allowed smaller investors to obtain cheaper financing even with the troubling economy of today. It is always best to research the muni bonds to learn what may be in store for you, and information can be found on reputable online resources.
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A bond is a type of debt security, where the issuer (like a bank) owes the bond holders money, with possible interest at regular intervals, when the bond matures. The bond values are the determined fair values of the bond. In general, the fair value of a bond is the current value of cash it is expected to generate by using a discount rate.
Municipal bonds are a type of bond that are issued by a government agency, city, county, school districts, or any other group of governments that are below the state level. Often the interest received by the bond holders is exempt from federal and state taxes. This makes municipal bonds an appealing choice for smaller investors. If a municipal bond news is issued for a certain purpose, they may not be tax exempt. Some of the projects funded by municipal bonds include hospitals, power plants, or airports. Municipal bonds can be sold to other investors if need be, which make them a pretty safe type of bond.
Municipal Bond pricing is generally the sum of the present values of the coupon payments plus the present value of the par value at maturity. Bonds can be priced at a premium (when its interest rate is higher than current rates), discount (if interest rate is lower than current interest rates), or at a par price. There are formulas that can be used to try and calculate the price of the bond. There are also many websites that will offer information on bond pricing based on the number of coupon payments, the value of each coupon payment, and the semi-annual yield, all plugged into a formula.
