I suggested they try to be patient, explaining that the slight rise in interest rates, trading cost of acquiring securities and the significant widening of closed-end municipal bond discounts
caused these negative returns, with longer-term returns most likely ending up higher than originally forecasted.<br />I also suggested they look at the last 15 years of quarterly returns for our No.
In light of Florida law prohibiting amortization of bond premiums and not specifically authorizing accretion of bond discounts, trustees may be reluctant to purchase a bond at either a discount or premium (even though trustees may consider such bonds to be excellent investment opportunities).
Example 3a (bond discount): On January 1, 2007, a trustee purchases 100,000 units of Edsel Motor Co.
Bond proceeds in excess of $192 million went to fund $17 million of capitalized interest, $4.5 million of bond insurance and surety fees, and $3 million of bond discounts
, as well as reasonable costs of issuance.
The amortization of bond premiums and bond discounts
uses the interest method of allocation.
This reviewer would highlight the areas of the book that people in the public sector are concerned about, such as items to consider in the cost of issuance of bonds (bond counsel fees, underwriter's spreads and bond discounts
); conventional financing (Letter of Credit, mortgage fees, other fees and charges); and the cost of money through conventional financing.
Note: Receipt of cash does not always represent all of the interest income to be reported for Federal and state income tax purposes; amortization of bond discount is also included.
The annual amount of bond discount amortization is computed using either an effective-interest (constant) method or the straight-line (or ratable) method.