Municipal Bonds: Tax-Equivalent Yield, Credit & Call Risk

What you'll build

What you will be able to do

Each lab ends with a concrete result that you build yourself and the checker confirms, cell by cell.

• Turn a tax-exempt muni yield into the taxable yield it is worth to Jordan, first with the federal rate only, then with state tax added, and decide which bond pays more after tax.
• Find the tax rate at which a muni and a taxable bond pay the same, build a TEY table for a ladder of marginal rates and pick the lowest rate where the muni comes out ahead.
• Price the return of a callable premium muni two ways with RATE: held to maturity and called at the first call date.
• Compute the yield for every call date and for maturity, take the minimum as the yield to worst and find which scenario sets it.
• Compute a water authority's net revenues and debt service coverage for five years, test the rate covenant and compare with a city's GO debt burden.
• Measure each muni's spread over the AAA benchmark curve in basis points, average the spreads by rating, flag wide spreads and price a new A-rated issue.
• Compute each bond's de minimis floor price, classify it as premium, de minimis discount or market discount, and estimate the tax due when it repays at par.
• Apply federal and state tax flags to four bonds, compute after-tax yields and income, pick the winner and chart pre-tax against after-tax yields.