Introduction

Welcome to Municipal Analysis and Pricing - the unit that teaches you how to evaluate, price, and compare municipal bonds like a professional.

Exam Weight: Part of F3 73% (~20 questions est. for all debt securities)

What You'll Learn

In this unit, you'll cover:

• Diversification of Municipal Investments: The three dimensions every muni portfolio needs
• GO Bond Analysis: How to assess the creditworthiness of general obligation bonds using debt ratios and economic indicators
• Revenue Bond Analysis: Feasibility studies, protective covenants, flow of funds, and debt service coverage
• Marketability Factors: What makes a muni bond easy or hard to sell in the secondary market
• Pricing Conventions: Dollar price vs. yield/basis quotes, accrued interest, and the 30/360 day count
• Premium Amortization and Discount Accretion: How bond premiums and discounts change the cost basis over time
• Yield Calculations: Taxable equivalent yield, current yield, yield to call, and yield relationships
• Bond Buyer Indexes: The three key municipal market indexes and supply/demand indicators
• Bonds in Default: How defaulted bonds trade differently
• Tax Treatment: Federal and state tax rules, OID, market discount, AMT, and bank-qualified bonds

Why This Matters

Municipal bond math and analysis are heavily tested on the Series 7. You need to know how to calculate debt ratios for GO bonds, evaluate revenue bond covenants, compute taxable equivalent yield, and understand the critical tax distinctions between OID and market discount. This unit builds on the municipal securities fundamentals from the prior unit and adds the analytical and mathematical tools the exam expects you to apply.

Let's start with understanding how to diversify a municipal bond portfolio.