Relating to a municipal bond swap, which of the following would NOT be a consideration?The coupon rateThe amount of accrued interestThe maturityThe quality
The amount of accrued interestA bond swap is simultaneously selling one bond and purchasing another. Bond swaps may be done to change the coupon, maturity, quality or rating, and for tax purposes. Accrued interest is not a consideration.
The quality of the municipal bond would not be a consideration in a municipal bond swap.
In a municipal bond swap, an investor exchanges one municipal bond for another with a different coupon rate, maturity, or amount of accrued interest without selling either bond on the open market. The aim of this swap is to achieve a more favorable interest rate or yield by taking advantage of market conditions. Hence, the quality of the bond, which refers to the likelihood of default or credit risk, is not a relevant consideration in this investment strategy.
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