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URL:  http://boards.fool.com/metropolitan-wash-d-c-arpts-auth-arpt-sys-rev-30419930.aspx

Subject:  Re: Municipal bonds: A train wreck waiting to ha Date:  12/7/2012  7:22 PM
Author:  warrl Number:  410773 of 459197

METROPOLITAN WASH D C ARPTS AUTH ARPT SYS REV AIRPORT SYS REV BDS
CUSIP 592646T52
Matures 10/1/2039
Callable at 10/1/20 @ 100
Currently Valued at 113.9
5.0% coupon

I would not attempt to judge whether this bond will be called in 2020 or not. If it is called, the fund will obviously lose the extra 19 years of a 5% yielding bond.


Oh, that's easy.

This is a $100 bond (and not a zero-coupon bond which is more complex to evaluate) being traded at $113.90. That $13.90 is ENTIRELY due to the 5% coupon rate being above currently prevailing interest rates. (In fact you might be looking at a $16 interest-rate premium combined with a $2.10 discount for some other reason.)

So as of 10/1/2020, you will see one of two results:

1) Currently-prevailing interest rates will have risen, erasing that $13.90 premium and possibly putting a discount in its place

2) The bond will be called, erasing that $13.90 premium price.

Callable bonds are very easy to predict. Just figure out what you (as a bond-holder) hope the issuer will do with the call option. That's what they WON'T do. Guaranteed.
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