Quotes

In the corporate bond chapter, we learned how corporate bonds are quoted in percentage of par format in 1/8ths. In general, municipal bond quotes look considerably different. Municipal bonds are typically quoted in yields, which look like:

7% municipal bond trading on a 5% basis

Without obtaining a fancy finance calculator, you won’t be able to determine the specific price of the bond quoted above. However, you can determine whether it’s trading at a discount or a premium. The first percent quoted (7%) is the coupon, while basis (5%) is another way of saying yield to maturity (YTM). If you recall from the bond fundamentals chapter, a bond is trading at a premium if its YTM is lower than the coupon.

Most municipal bonds are quoted this way, but not all. Municipal dollar bonds, which are usually revenue bonds, are quoted just like corporate bonds in percentage of par form in 1/8ths. The Series 7 exam will most likely stick to generalities, so you should assume that municipal bonds are quoted with yields.