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Accrued interest:
Coupon interest accumulated on a bond or note since the last interest payment or, for a new issue, from the dated date to the date of delivery. Since interest on municipal bonds is payable semi-annually, every six months, when you buy a bond in mid-term you are only entitled to the interest the bond earns after you buy it. The interest earned previously, the accrued interest, belongs to the seller. Some first-time bond buyers think this payment is a hidden charge or fee, not realizing that they will get it back in full at the next interest payment date as tax-free interest.
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Acts - 1915 Act or 1911 Act Bonds:
The California name for Special Assessment bonds or Improvement Bonds, named, obviously, for the years in which the enabling legislature was approved. A special district is formed, public improvements (streets, curbs, gutters, water or sewer systems, etc.) are constructed, assessments are levied on all the properties in the district in proportion to the benefit derived from the improvement. Bonds are sold - without voter approval - and are repaid from the special assessments received. '15 Acts are callable on any interest payment date and are usually dated on the 2nd of the month instead of the 1st or the 15th. '11 Act bonds are payable from the assessments from one specific property and have a prior lien on that property in the event of default.
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Ad Valorem Tax:
(It actually means "according to its value.") A state or local government tax based on the value of real property as determined by the county tax assessor.
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Advanced Refunded Bonds:
A municipality may sell a second bond issue at a lower interest rate cost, placing the proceeds of the issue in an escrow account from which the first issue's principal and interest will be repaid when due. See also ETM bonds.
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AMBAC:
AMBAC Indemnity Corp. The number two-ranked municipal bond insurance company.
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Amortization of Debt:
The annual reduction of principal through the use of serial bonds or term bonds with a sinking fund.
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Arbitrage:
The interest rate differential that exists when proceeds from a municipal bond - which is tax-free and carries a lower yield - are invested in taxable securities with a yield that is higher. The 1986 Tax Reform Act made this practice by municipalities illegal solely as a borrowing tactic, except under certain safe-harbor conditions..
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Assessed Valuation:
A municipality's worth in dollars based on real estate and/or other property for the purpose of taxation, sometimes expressed as a percent of the full market value of the community.
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Authority or Agency:
A state or local unit of government created to perform a single activity or a limited group of functions and authorized by the state legislature to issue bonded debt.
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Authorizing Ordinance:
A law that when enacted allows the unit of government to sell a specific bond issue or finance a specific project.
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Average life:
The average length of time an issue of serial bonds and/or term bonds with mandatory sinking funds and/or estimated prepayments is expected to be outstanding. It also can be the average maturity of a bond portfolio.
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