Public Finance Last Minute
Last minute public finance internship questions? What technicals should i go over?
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For an internship just know why public finance and simple bond math. You won't be doing anything technical
Two bonds have the same yield but one has a 4% coupon and one has a 5% coupon, which has the higher price? Why? What if they have the same coupon but different yields? Will the higher or lower yield have a higher price? What if they have the same price, etc.
Understand the relationship between coupon, price and yield.
You own a 5 year bond and a 10 year bond, interest rates fell 1% this morning on both, which lost more value? Why?
Know the difference between a General Obligation bond (say "Gee-Oh") & Revenue bonds. GO's are financed by taxing a specified population, revenue bonds are financed by revenues from say, a power plant or toll road. Many GO's are "unlimited ad valorem" which means that the issuer can legally tax the populace in unlimited amounts to pay debt service. This did not occur in the Detroit bankruptcy (largest ever) due to population loss combined with an impoverished population making this politically untenable. Say you're excited about our nation's infrastructure needs fueling the demand for this sort of business. Pre-crisis most bonds were issued with secondary insurance, most of these went bankrupt during the crisis due to liabilities that weren't related to the muni part of their business. Now only like 5% of bonds are insured, making for a much more varied pricing structure between all the different ratings categories of bonds.
This isn't actually 100% true -- there are state maximums for levying that Detroit was already at. You're right the population loss caused property values to drop, ie levying the same % on lower property value just wasn't enough to pay the bills.
Right but a retail buyer of the bonds would see "unlimited" in the bond's description. Jefferson county was also an example of state law (needed state congress approval to raise taxes, language was buried on like page 100 of the official statement) superseding an unlimited GO pledge.
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