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The Pricing of Municipal Bonds

Published online by Cambridge University Press:  06 April 2009

Miles Livingston
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Extract

In recent years, increased interest has developed in municipal bonds. This interest seems to be related to higher levels of interest rates, higher marginal tax rates for individuals because of inflation, and large demand for capital funds by municipalities. In spite of this greater awareness of municipal bonds, the academic literature lacks a rigorous analysis comparing municipal bonds with other bonds. The purpose of this paper is to partially fill this gap. Since one major characteristic differentiating municipal bonds from other bonds is the (federal) tax-free status of the coupons on municipals, this paper will trace out the implications of this differential tax treatment by comparing municipal bonds with fully-taxed bonds.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 17 , Issue 2 , June 1982 , pp. 179 - 193
Copyright
Copyright © School of Business Administration, University of Washington 1982

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