Financial Industry Regulatory Authority (FINRA) Practice Exam 2026 - Free FINRA Practice Questions and Study Guide

The computation of dollar prices and accrued interest on municipal bonds is typically based on the 30/360 calendar. This method assumes that each month has 30 days and a year has 360 days, which simplifies calculations for interest accrual. The 30/360 convention is specifically designed for bond calculations because it provides a standard way to approximate time periods between coupon payments, ensuring a consistent approach that is widely accepted in the bond market.

Using the 30/360 method, when calculating accrued interest, you assume that the interest accumulates evenly over the months, which is practical for the majority of municipal bond issuances. This method allows for easy comparisons and straightforward calculations, which is crucial for investors and issuers alike when determining bond prices and evaluating their investments.

Other options, such as Actual 360 or Actual 365, refer to different interest day-count conventions that are not typically used for municipal bonds. These alternatives capture variations in the actual number of days in a month or year, leading to different interest calculations that are more common in other types of debt instruments, like corporate bonds or loans. The 30/360 method remains the standard due to its convenience and widespread acceptance in municipal finance.