The Cost of Inefficient Coupons on Municipal Bonds

Michael H. Hopewell and George G. Kaufman

Journal of Financial and Quantitative Analysis, 1974, vol. 9, issue 2, 155-164

Abstract: Ceteris paribus, investors prefer to purchase municipal bonds selling close to their par value. That is, investors are willing to purchase at the lowest yield a municipal bond alike in all respects to other municipal bonds, but with a coupon that permits it to be sold at or near its par value. Conversely, investors are willing to purchase municipal bonds with coupons that cause them to be sold at prices either greatly above or greatly below par only at penalty or premium yields relative to similar par bonds.

Date: 1974
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