DEBT- Municipal
A municipality has a tax rate of 8 mills. A piece of real property in the municipality is assessed at $100,000 and has a fair market value of $200,000. The annual tax liability on the property is: A. $800 B. $1,600 C. $8,000 D. $16,000
A. $800 One mill = .001; 8 mills = .008. Taxes are based on assessed valuation, not fair market value. .008 x $100,000 = $800. Another way to think about it is that 1 mill = $1 of tax for each $1,000 of assessed value.
To smooth out cash flow, a municipality will issue all of the following EXCEPT: A. BAN B. RAN C. TAN D. TRAN
A. BAN Municipalities issue TANs, RANs and TRANs to smooth out cash flow. TANs are (Tax Anticipation Notes) to "pull forward" funds that will be collected as taxes in later months. For example, if taxes are due on April 15th, and it is now January 15th, and the municipality wishes to get funds at this time, it can issue 3 month TANs. When the taxes are actually collected, the proceeds are used to retire the TAN issue. RANs (Revenue Anticipation Notes) are issued to "pull forward" revenues that are expected to be received by the municipality in the coming months. For example, the City of New York will receive a $200,000,000 payment from the Federal government on July 1st to support mass transit. It is now April 1st. The city can issue 3-month RANs and borrow against the upcoming revenue to be received from the Federal Government. A TRAN is a combination Tax and Revenue Anticipation Note. Municipalities issue BANs (Bond Anticipation Notes) to "pull forward" funds that will be collected from a later permanent bond sale. These are isolated events, since municipalities do not sell bonds every day (unlike collecting taxes and revenues). For example, a municipality expects to float a 20 year bond issue in 6 months. It can get the funds today by issuing 6 month BANs now. When the bond issue is floated, the proceeds are used to pay off the BANs.
Which of the following revenue bond issues would likely pledge the earnings from invested endowment funds to the bondholders? A. Hospital bond B. Water and Sewer bond C. Mortgage bond D. Turnpike bond
A. Hospital bond Hospitals and colleges are often given large monetary gifts - known as "endowments." The institution invests the endowment funds to generate interest and dividend income. It usually agrees not to invade the principal amount. The earnings on the endowment funds are a source of revenue that can be pledged to bondholders under a revenue pledge.
Which of the following actions must be taken if a municipality wishes to raise its debt limit? A. Public referendum B. Court order C. Judicial edict D. Tax assessment
A. Public referendum If a municipality wishes to raise its debt limit, the voters must approve via a public referendum. In effect, the voters are approving an increase in their taxes when they approve such a measure.
A political subdivision wishes to issue a bond backed by taxes on cigarettes and gasoline. It would most likely issue a(n): A. Special tax bond B. Industrial revenue bond C. Special assessment bond D. General obligation bond
A. Special tax bond A municipal bond which is secured by taxes other than ad valorem taxes is a special tax bond. These "special taxes" are typically excise taxes on tobacco, alcohol and gasoline.
Interest income from all of the following bond issues is exempt from Federal State and Local tax EXCEPT: A. State of Hawaii B. Puerto Rico C. Guam D. Virgin Islands
A. State of Hawaii Interest income received from bonds issued by territories or possessions such as Puerto Rico, Guam and the Virgin islands, is exempt from Federal, State and Local tax, no matter where the purchaser lives. Interest income from State issues is always exempt from Federal income tax, but is only exempt from State and Local tax if purchased by a resident of that State.
If an issuer defaults on a moral obligation bond, payment can only be made by: A. legislative apportionment B. judicial edict C. legal authorization D. municipal injunction
A. legislative apportionment Moral obligation bonds are backed by pledged revenues and also by a non-binding pledge to report any revenue deficiencies to the state legislature. The legislature is authorized to apportion the funds necessary to service the debt, but is under no obligation to do so.
Which statement is TRUE about a Certificate of Participation (COP)? A. COPs are subject to statutory debt limits B. COPs are backed by a pledge of lease revenues C. COPs have a higher credit rating than G.O. bonds of the same issuer D. COPs are full faith and credit obligations of the issuer
B. COPs are backed by a pledge of lease revenues As municipalities reached their debt limits with G.O. bond issuance, they found it harder and harder to get voter approval to raise limits to sell additional G.O. bonds (think of Proposition 13 in California that capped property taxes to almost no increase unless the property was sold). To get around this, the COP - Certificate of Participation - was invented and COP issuance is now greater than G.O. bond issuance in many states. A COP is issued by a state entity where lease revenues are pledged to back the issue. The lease payments are received from a project such as a university dormitory, prison, municipal office building, municipal transit system, etc. The "difference" is that the lease payment is made based on the governing body making an annual appropriation from tax collections, and it is not "legally" obligated to do so, hence it is not really a bond. Rather, it is a security that gives the holder a share of "revenue" if the appropriation is made (which it will be, otherwise that issuer's credit rating would be trashed). COP issuance has increased greatly over the years because they are easier to issue than G.O. debt (no pesky debt limits or voter approval to deal with) - but they are sold at a slightly higher yield, because they have more credit risk.
Who guarantees an Industrial Development Bond? A. Municipal issuing authority B. Corporate lessee C. MBIA D. AMBAC
B. Corporate lessee Industrial Development Bonds are issued by municipal authorities, with the revenue source being the lease payments made by a corporate lessee. Furthermore, the corporate lessee unconditionally guarantees the bonds - so they take on the credit rating of the corporate guarantor.
Interest income from which of the following securities is subject to State and Local tax? A. Treasury Bonds B. Federal National Mortgage Association Bonds C. Federal Home Loan Bank Bonds D. Puerto Rico Bonds
B. Federal National Mortgage Association Bonds As a rule, interest income from U.S. Government securities is subject to Federal tax and exempt from State and Local tax. As a general rule, interest income from agency securities is subject to Federal tax and exempt from State and Local tax. However, the interest income from securities issued by the housing agencies that sell pass through certificates is fully taxable. These are: Federal National Mortgage Association ("Fannie Mae") Government National Mortgage Association ("Ginnie Mae") Federal Home Loan Mortgage Corporation ("Freddie Mac") Interest income received from bonds issued by territories or possessions is always triple exempt.
The manager of a pension plan would invest in all of the following debt securities EXCEPT: A. Corporate bonds B. Municipal bonds C. U.S. government bonds D. Foreign government bonds
B. Municipal bonds Income from securities held in Pension Plans is tax deferred; so there is no benefit to investing in municipals, which have lower rates because their interest income is exempt from Federal income tax. Investments would be made in corporate and government bonds (both U.S. government obligations and foreign government obligations, such as Canadian government bonds), both of which have higher interest rates because their interest income is taxable by the Federal government.
Short sale transactions are typical for all of the following EXCEPT: A. Treasury bonds B. Municipal bonds C. Common stock D. Listed options
B. Municipal bonds Municipal bonds are generally not sold short because the trading market in each maturity is very thin, making short covering difficult, if not impossible.
A municipal note that is issued in anticipation of receiving future revenues is a: A. TAN B. RAN C. TRAN D. BAN
B. RAN A Revenue Anticipation Note (RAN) is issued by a municipality that wishes to borrow short-term against revenues that are expected to be received in the near future. An example would be the City of New York borrowing, via a RAN issue, against a mass transit subsidy payment from the Federal government to be received in the near future.
During its fiscal year, New York state is experiencing a temporary cash flow shortage, expected to last for 5 months. To meet current obligations, the state would most likely issue: A. General Obligation bonds B. TANs C. CLNs D. Moral Obligation bonds
B. TANs To ease a temporary cash flow shortage, municipalities will issue either TANs (Tax Anticipation Notes) or RANs (Revenue Anticipation Notes). These notes are paid off when the taxes or anticipated revenues are collected sometime in the near future. Long term bond issues are not appropriate to meet cash flow shortages and CLNs (Construction Loan Notes) are only issued in connection with building projects.
If a regular way municipal bond trade takes place on Monday, June 2nd, the trade will settle on: A. Tuesday June 3rd B. Wednesday June 4th C. Thursday June 5th D. Friday June 6th
B. Wednesday June 4th Trades of municipal securities settle "regular way" 2 business days after trade date.
A municipal variable rate demand note is a municipal: A. note that may be retired prior to maturity on any interest payment date at the demand of the issuer B. bond that gives the holder a tender option feature, usually at par, as of the reset date C. note that requires the issuer to reset the interest rate to the market rate upon demand of the holder D. bond that allows the issuer to vary the repayment date, upon giving written notice to the holders
B. bond that gives the holder a tender option feature, usually at par, as of the reset date A municipal variable rate demand note is a municipal bond that gives the holder the right to "put" the bond to the issuer at par, typically at the interest payment dates. The interest rate is reset, usually weekly, to an indexed rate, and thus, will vary. It is called a "note" because the actual maturity is unknown - the holder, in effect, can redeem at par whenever he or she wants. With any variable rate note, the interest rate varies as market rates move; therefore the market price remains at, or very close to, par. Thus, these instruments have almost no market risk.
Interest income from municipal bonds is: A. exempt from Federal, State and Local tax B. exempt from Federal tax and subject to State and Local tax C. subject to Federal tax and exempt from State and Local tax D. subject to Federal, State and Local tax
B. exempt from Federal tax and subject to State and Local tax The interest income from municipal bonds is exempt from Federal income tax; but is subject to State and Local tax. However, if a bond is purchased by a State resident, then the State exempts that issue from taxation as well.
All of the following are sources of income available for general obligation bond debt service EXCEPT: A. ad valorem taxes B. highway tolls C. license fees D. assessments
B. highway tolls General obligation bonds are backed by the full faith, credit, and taxing power of the issuer. Ad valorem taxes, fines collected for paying taxes late, assessments of additional taxes, as well as fees collected that are not a specified income source for revenue bonds, are all sources of income backing G.O. issues. Highway tolls are pledged to pay the debt service on revenue bonds that are sold to finance the construction of the road. These monies are not available to pay the debt service on G.O. bond issues.
Municipalities would issue tax exempt commercial paper for all of the following reasons EXCEPT to: A. meet a temporary cash shortage due to unforeseen extraordinary expenses B. refund an outstanding bond issue C. provide construction period financing that will be permanently financed by a future bond sale D. smooth out collections of funds that are normally subject to seasonal fluctuations
B. refund an outstanding bond issue Most municipalities finance short term needs through BANs (Bond Anticipation Notes), TANs (Tax Anticipation Notes), RANs (Revenue Anticipation Notes) and TRANs (Tax and Revenue Anticipation Notes). However, commercial paper could be used by a municipality to finance short term cash shortages caused by slow tax collections or unforeseen extraordinary expenses (these could also be financed by tax anticipation notes). Also, commercial paper could be used for an interim construction loan, because when a building is under construction, the long term financing may not yet be in place (of course, the municipality could also finance the construction through a bond anticipation note). Commercial paper cannot be used for long term financing such as a bond refunding.
All of the following statements are true about "Build America Bonds" EXCEPT: A. the issuer gets a federal tax credit equal to 35% of the stated interest rate on the issue B. the interest is federally tax exempt C. the bonds give municipal issuers access to the conventional corporate debt market D. the proceeds of the bond issues can only be used for infrastructure improvements
B. the interest is federally tax exempt Build America Bonds (BABs) were issued by municipalities in 2009 and 2010. They are taxable municipal bonds that get a 35% Federal interest rate subsidy and the bond proceeds must be used for capital improvements (this is part of the economic stimulus program after the 2008-2009 "great recession"). These bonds were meant to create jobs and make to it easier for municipalities to access the broader corporate debt market (which includes international investors who do not participate in the municipal market) for needed capital projects.
A municipality would use general obligation bonds to finance all of the following EXCEPT the: A. addition to an existing school building B. construction of a new town hall C. construction of an industrial park D. addition of traffic lights to main intersections
C. Construction of an industrial park The proceeds of general obligation bonds are used by municipalities to provide services to the general population - including the building and improvement of schools, police and fire department structures, and general municipal buildings. These bonds are serviced from general tax collections. Revenue bonds are used where there is a specific revenue source that can be pledged to bondholders to service the debt. Toll roads; toll bridges and tunnels; industrial parks where rents paid are the revenue source; water and sewer systems where separate water and sewer charges are imposed; are all typically built with revenue bond issues.
Issuers of Federal tax exempt commercial paper include: A. Corporations B. Federal Government C. Municipal Governments D. All the above
C. Municipal Governments Only municipal issues are exempt from Federal income tax on interest income. Corporate and U.S. Government debt interest income is subject to Federal income tax.
A double barreled municipal bond is one that is backed by: A. 2 separate sources of revenue B. 2 separate sources of taxing power C. a pledge of revenues and the backing of that municipality's ad valorem taxing power D. a pledge of revenues and the unconditional guarantee of the U.S. Government
C. a pledge of revenues and the backing of that municipality's ad valorem taxing power A double barreled bond is one backed by a defined source of revenue (other than taxes) plus the full faith and credit of an issuer that has taxing powers. The term is occasionally, but erroneously, used to describe bonds backed by 2 sources of revenue or a bond backed by a revenue pledge that additionally, has the guarantee of the U.S. Government.
Types of funds used to back revenue bond issues include all of the following EXCEPT: A. excise taxes B. lease rentals C. ad valorem taxes D. enterprise activity income
C. ad valorem taxes Ad valorem taxes back general obligation bonds. Revenue bonds can be backed by any source of revenue other than ad valorem taxes. These sources include revenue from facility operations, grants, excise taxes, or other non-ad valorem taxes, like sales and income taxes.
The municipal bond counsel opines on all of the following EXCEPT: A. validity B. legality C. feasibility D. tax exempt status
C. feasibility The bond counsel examines new municipal issues for legal or tax problems and renders an opinion on the validity, legality and tax exempt status of the issue. Bond counsels do not render economic opinions, which is the same as rendering an opinion on feasibility of an issue.
Constitutional debt limits are imposed on the issuance of: A. revenue bonds B. moral obligation bonds C. general obligation bonds D. industrial development bonds
C. general obligation bonds Municipalities impose debt ceilings on the dollar amount of bonds that can be issued backed by ad valorem taxing power (G.O. bonds). To raise this limit requires a public referendum. Debt limits do not apply to self supporting debt such as revenue bonds or industrial revenue bonds. They also do not apply to moral obligation bonds, which the issuer does not legally have to pay (though the issuer is "morally" obligated to pay).
A debt obligation issued by a municipality for the benefit of a corporate user is a(n): A. overlapping debt B. double barreled debt C. industrial development debt D. moral obligation debt
C. industrial development debt Industrial development bonds are issued by municipalities to build facilities that are leased to corporate users. These are a type of revenue bond where the lease payments made by the corporate lessee are the source of funds to pay debt service on the issue.
All of the following are participants that offer municipal bonds in the secondary market EXCEPT: A. bank dealers B. general securities dealers C. issuers D. municipal broker's brokers
C. issuers Municipal issuers offer bonds in the primary market. Issuers do not trade their outstanding debt. Bank dealers, general securities dealers and municipal broker's brokers all trade in the secondary market.
Income sources backing a special tax bond issue could be all of the following EXCEPT: A. Excise taxes B. Sales taxes C. Income taxes D. Ad Valorem taxes
D. Ad Valorem taxes Ad valorem taxes do not back special tax bond issues. Ad valorem taxes back general obligation bonds. The definition of a special tax bond is one which is not backed by ad valorem taxes, but rather by another tax source (such as excise, sales and income taxes).
A municipal "GAN" could be backed by all of the following EXCEPT: A. Federal transit assistance monies B. Federal pollution control assistance monies C. Federal energy conservation assistance monies D. Federal tax collection monies
D. Federal tax collection monies A municipal "GAN" is a Grant Anticipation Note. These are used by municipalities to "pull forward" federal grant monies that are received to support mass transit improvements in cities, pollution control facilities and energy conservation infrastructure.
All of the following would be found in a municipal bond resolution EXCEPT: A. the issuer's duties to the bondholders B. the nature of the obligation C. any restrictive covenants to which the issuer must adhere D. any costs to be paid by the issuer in connection with issuing the bonds
D. any costs to be paid by the issuer in connection with issuing the bonds The bond resolution (or bond contract) is the contract between the issuer and the bondholder. It spells out the nature of the obligation; the issuer's duties to the bondholders; and any restrictive covenants to which the issuer must adhere. Any costs that the issuer incurs to sell the bonds has no bearing on the bond contract, since the bondholder is not involved in these expenses - they are solely the responsibility of the issuer.
Variable rate municipal notes are NOT subject to which of the following risks? A. legislative risk B. default risk C. marketability risk D. interest rate risk
D. interest rate risk Variable rate municipal notes avoid market risk, also known as "interest rate risk." A rise in interest rates will not devalue these securities, since they can be put to the issuer at par at each weekly reset date. Thus, the price will not fall below par if interest rates rise. These notes are subject to legislative risk; marketability risk (Can they be liquidated quickly?); and default risk
The proceeds of a "Build America Bond" may be used for all of the following EXCEPT: A. public buildings B. transportation infrastructure C. water and sewer projects D. prerefunding outstanding issues
D. prerefunding outstanding issues Build America Bonds (BABs) were issued by municipalities in 2009 and 2010. They are taxable municipal bonds that get a 35% Federal interest rate subsidy and the bond proceeds must be used for capital improvements (this is part of the economic stimulus program after the 2008-2009 "great recession"). These bonds were meant to create jobs and make to it easier for municipalities to access the debt market for needed capital projects. The proceeds of BABs cannot be used to prerefund existing issues (that does not create jobs).
A municipal bond which funds an improvement that benefits only a small portion of the community is a: A. general obligation bond B. double barreled bond C. moral obligation bond D. special assessment bond
D. special assessment bond Special assessment bonds are used to fund an improvement which benefits only a small portion of the community. For example: new street lights are installed in a specific area where only that area is assessed higher taxes to pay for the improvement.
A "qualified" legal opinion on a revenue bond is one which: A. states that the pledged revenues are subject to prior liens B. is given by a qualified bond counsel C. states that no liens have been found against pledged revenues D. states that the bond counsel is qualified in the state to render an opinion
D. states that the bond counsel is qualified in the state to render an opinion A qualified legal opinion is one where the bond counsel has found a legal or tax "problem," and the counsel details the "qualification" in the opinion. For a revenue bond issue, a reason for a qualified opinion is that the bond counsel has found other legal claims (liens) on the revenues that have been pledged to the bondholders.
From an issuer's standpoint, as the years progress, "level debt service" serial bond issues have: (choose all that apply) I Decreasing interest payment amounts II Increasing interest payment amounts III Decreasing principal repayment amounts IV Increasing principal repayment amounts
I and IV Level debt service means that the issuer pays the same amount each year, with the funds being used to pay both interest and a portion of principal on the issue (similar to a mortgage amortization schedule). Since bonds are retired annually, the amount of the payment representing interest declines annually. The balance of the level payment is used to pay off bonds for that year. Thus, each year, the principal repayment amount increases.
Municipal variable rate demand notes: (choose all that apply) I have a minimum value which will never go below par II have a maximum value which will never go above par III are subject to market risk IV are not subject to market risk
I and IV Municipal variable rate demand notes are issued by a municipality. The interest rate is reset to the market rate weekly; and at the reset date, the holder can "put" the bonds back to the issuer at par. Here, the minimum value of the bond is par - because of the put feature. Because the price of the bond cannot go below par, these bonds are not subject to market risk. However, if interest rates fall, the price can go above par (by a small amount) until the next reset date.
A Capital Appreciation Bond (CAB) is:(choose all that apply) I a general obligation bond II a revenue bond III issued at par IV issued at a deep discount
I and IV A Capital Appreciation Bond (CAB) is a municipal zero coupon bond with a "legal" twist to it. A conventional zero coupon G.O. bond is counted against an issuer's debt limit at par value because the discount is treated as "principal." If a new issue discount bond is legally crafted as a CAB, then the principal counted against the issuer's debt limit is the discounted principal amount and the discount earned is considered to be interest income. The bond is purchased at the discounted price and then par is returned at maturity, with the 2 components of that par payment being the return of the discounted purchase price (the "principal" amount) and the accreted interest income.
Significant investment features for the purchaser of municipal bonds include which of the following?(choose all that apply) I Maturities and issues may be diversified II Insured issues are available for customers wishing minimum credit risk III Interest is currently federal tax exempt IV Interest is currently state and local tax exempt
I, II, III Interest income derived from municipal bonds is currently exempt from federal income tax; however, it is SUBJECT to state and local tax unless the state exempts the issue from taxation.
Which of the following are evaluated in the feasibility study prepared prior to the issuance of revenue bonds?(choose all that apply) I Expected demand for the facility II Effect of competing facilities III Expected operating costs of the facility IV Bond trust indenture
I, II, III The feasibility study performed prior to the issuance of revenue bonds is an economic study that projects revenues and costs for the facility to determine if there will be sufficient net revenues to service the debt. The effect of any competing facilities is included in the study. Legal aspects, such as the trust indenture, are not included in the feasibility study. These are evaluated by the bond counsel.
A municipality has issued a general obligation bond. Which of the following are sources of income available for debt service? (choose all that apply) I Ad valorem taxes II License fees III Fines IV Assessments
I, II, III, IV General obligation bonds are backed by the full faith, credit, and taxing power of the issuer. Ad valorem taxes, fines collected for paying taxes late, assessments of additional taxes, as well as fees collected that are not a specified income source for revenue bonds, are all sources of income backing G.O. issues.
In order to render an opinion on a new municipal bond issue, the bond counsel will examine:(choose all that apply) I Municipal statutes II State constitution and amendments III Tax code and interpretive regulations IV Judicial edicts
I, II, III, and IV The bond counsel renders an opinion as to the legality, validity, and tax exempt status of a new municipal issue. To do this, he examines municipal statutes, state laws, judicial edicts, and tax regulations.
Municipalities would issue tax exempt commercial paper for which of the following reasons?(choose all that apply) I To smooth out collections of funds that are normally subject to seasonal fluctuations II To meet a temporary cash shortage due to unforeseen extraordinary expenses III To refund an outstanding bond issue IV To provide construction period financing that will be permanently financed by a future bond sale
I, II, IV Municipal commercial paper is not very popular. Most municipalities finance short term needs through BANs (Bond Anticipation Notes), TANs (Tax Anticipation Notes), RANs (Revenue Anticipation Notes) and TRANs (Tax and Revenue Anticipation Notes). However, commercial paper could be used by a municipality to finance short-term cash shortages caused by slow tax collections or unforeseen extraordinary expenses (these could also be financed by tax anticipation notes). Also, commercial paper could be used for an interim construction loan, because when a building is under construction, the long term financing may not yet be in place (of course, the municipality could also finance the construction through a CLN - construction loan note). Commercial paper cannot be used for long term financing such as a bond refunding. Remember, commercial paper is a short term promissory obligation - not long term.
Which of the following statements are true regarding Construction Loan Notes ("CLNs")?(choose all that apply) I The use of CLNs allows the municipal issuer to reduce its interest cost when constructing a new facility II The maturity of CLNs is generally 2 - 3 years III Accrued interest on CLNs is computed on an actual day month / actual day year basis IV When the facility is completed, the permanent financing is added to the outstanding balance ("basis") of the CLNs
I,II,III Construction Loan Notes (CLNs) are a type of short term municipal note used to finance the construction of buildings. Municipalities use CLNs because lenders are reluctant to finance a building until it is completed (for example, a bank will not give a mortgage on a house until there is a certificate of occupancy issued). Thus, during the construction period (which can take a number of years), short term financing is used. Once the building is completed, a long term bond issue is floated, and the proceeds are used to pay off the notes. (This long term financing is often called a "take out" loan, since it takes out the original short term financing). CLNs allow an issuer to reduce its interest cost, since the interest rate that must be paid on short term notes is lower than that for long term bond issues. CLNs typically have a maturity of 2 to 3 years, to coincide with the projected construction period of the building. Accrued interest on all municipal short term notes is computed in a manner similar to other money market instruments - an actual day month / actual day year basis. Please note that this is not true for long term municipal bonds, which accrue interest on a 30 day month / 360 day year. Finally, the last statement is false. When the long term financing is completed, the proceeds are used to retire the CLNs. The proceeds of the long term bond issue are not added to the original debt outstanding.
Which of the following statements are TRUE regarding debt obligations? (choose all that apply) I Corporations issue revenue bonds II Municipalities issue revenue bonds III Corporations issue income bonds IV Municipalities issue income bonds
II and III Corporations issue income bonds (also known as adjustment bonds) in times of corporate distress. These bonds obligate the issuer to pay only if the issuer has sufficient income. Municipalities issue revenue bonds, which pledge the revenues from a facility (such as a bridge or tunnel) to pay for the debt service on the bond issue.
A municipal variable rate demand note is:(choose all that apply) I a short term issue II a long term issue III issued at short-term interest rates IV issued at long-term interest rates
II and III The best answer is C. A municipal variable rate demand note is a long-term municipal security because it has no stated maturity, but it is issued at short-term (lower) interest rates, because the holder has the right to "put" the bond to the issuer at par at each interest payment date. The interest rate is reset, usually weekly at the interest payment date, to an indexed rate for the next week. Thus, the interest rate will vary. With any variable rate note, the interest rate varies as market rates move; therefore the market price remains at, or very close to, par. Thus, these instruments have almost no market risk.
New issues of short term municipal notes and bonds are available in which forms? (choose all that apply) I Bearer II Book Entry III Registered to Principal and Interest
II only New issues of municipal notes are available only in "book entry" form. The same is true for new issues of municipal bonds.