Municipal Debt
What is the formula for equivalent taxable yield?
(Tax free yield)/ (100%-Tax Bracket)
A customer in the 30% tax bracket invests in a 5% municipal bond. The equivalent yield on a corporate bond is:
7.15%
A municipal investor is considering the purchase of a 10 year, 6% G.O. bond with a 5 3/4% yield to maturity. The investor is in the 31% tax bracket. The equivalent taxable yield is:
8.33%
A customer residing in California that is in the 30% Federal tax bracket and the 10% State tax bracket wishes to make a bond investment with a minimum 10-year life. The customer also wants a high level of safety. The following 10-year bonds are available: Yield AAA Corporate Bond 6.50 U.S. Treasury Bond 4.50 AAA Federal Home Loan Bank Bond 5.00 AAA California Bond 4.00 The best recommendation for the customer is the: A. U.S. Treasury bond B. AAA Corporate bond C. AAA California bond D. AAA Federal Home Loan Bank bond
AAA California Bond
A contractor for a city is developing a municipal sewer system. The city will issue a bond for the project that will be based on fees assessed on residents of the city that use the sewer system. Which statement is TRUE? A. The contractor must register as a broker-dealer since he is in charge of the construction project financed by the bond issue B. This is a municipal revenue bond issue C. The statutory issuer is the contractor, not the city, and the contractor must register the bonds prior to sale D. This is a general obligation bond issue
B. This is a municipal revenue bond issue
A customer in the 28% tax bracket is considering the purchase of a municipal bond yielding 8% or a corporate bond yielding 11.1%. Both bonds have similar maturities and credit ratings. Which statement is TRUE? A. The effective yield on the municipal bond is higher B. The effective yield on the corporate bond is higher C. Both effective yields are equivalent D. The coupon rates for each bond are necessary to determine the effective yield
Both effective yields are equivalent
Which statement is TRUE regarding taxation of distributions from municipal bond funds? A. Dividend distributions representing interest and capital gains are both tax-free B. Dividend distributions representing interest are tax-free; dividend distributions representing capital gains are taxable C. Dividend distributions representing interest are taxable; dividend distributions representing capital gains are tax-free D. Dividend distributions representing interest and capital gains are both taxable
Dividend distributions representing interest are tax-free; dividend distributions representing capital gains are taxable
Income sources backing a special tax bond issue could be what?
Excise taxes; Sales taxes; Income taxes;
A municipality is at its constitutional debt limit. Voter approval would be required for a municipality to float a(n):
General Obligation Bond
The type of municipal bond issue that would be used to finance the construction of public schools would be a:
General Obligation Bond
All of the following statements are true regarding municipal bonds EXCEPT: A. General obligation bonds have a higher risk of default than revenue bonds B. General obligation bonds are backed by the full faith and credit of the issuer C. Interest income received from both general obligations and revenue bonds is exempt from Federal income tax D. General obligation bonds cannot be issued in excess of statutory debt limits
General obligation bonds have a higher risk of default than revenue bonds.
Which of the following municipal securities would be considered a "double barreled" issue? A. Revenue Bond backed by two sources of revenue B. Hospital Revenue Bond backed by Ad Valorem taxing power C. Moral Obligation Bond D. Bond Anticipation Note
Hospital Revenue Bond backed by Ad Valorem taxing power
A municipality is at its debt limit and wishes to sell additional bonds. Voter approval is required for the municipality to sell: I. General Obligation Bonds II. Revenue Bonds III. Industrial Revenue Bonds
I Only
The interest income earned on which of the following municipal bonds would be included in the alternative minimum tax computation I. Industrial Revenue Bond II. Convention Center Bond III. Turnpike Revenue Bond IV. School District Bond
I and II Only
Industrial development bonds: I. are backed by rental revenues paid by the corporate lessee II. are backed by the municipality's ad valorem taxes III. take on the credit rating of the corporate lessee IV. take on the credit rating of the municipal lessor
I and III
The manager of a pension plan would most likely invest in which of the following debt issues? I. Corporate Bonds II. Municipal bonds III. Government Bonds
I and III Only
A municipality has issued a general obligation bond. Which of the following are sources of income available for debt service? I. Collected current ad valorem taxes II. Collected back due ad valorem taxes III. Fines IV. Assessments
I, II, III, IV
A municipality wishes to sell a bond issue that is NOT backed by taxing power. Which of the following bonds could be issued? I. Revenue bond II. Industrial revenue bond III. General obligation bond IV. Lease rental bond
I, II, IV
Municipal bonds would be an appropriate investment for which of the following? I. Individuals II. Individual Retirement Accounts III. Bank Holding Companies IV. Casualty Companies
I, III, IV
Which of the following are TRUE statements regarding the tax equivalent yield of a municipal bond? I. The tax equivalent yield is disclosed on the customer confirmation II. The yield will vary depending on the tax bracket of the customer III. The tax equivalent yield will change as the market price of the bond varies IV. The tax equivalent yield is the complement of the current yield
II and III
Which of the following statements are TRUE regarding debt obligations? I. Corporations issue revenue bonds II. Municipalities issue revenue bonds III. Corporations issue income bonds IV. Municipalities issue income bonds
II and III
Which statements are TRUE regarding taxation of distributions from municipal bond funds? I. Dividend distributions representing interest are taxable II. Dividend distributions representing interest are tax-free III. Dividend distributions representing capital gains are taxable IV. Dividend distributions representing capital gains are tax-free A. I and III B. I and IV C. II and III D. II and IV
II and III
Special tax bonds are: I. backed by ad valorem taxes II. backed by sales or excise taxes III. a self supporting debt IV. a non-self supporting debt
II and IV
The interest income earned on which of the following municipal bonds would be included in the alternative minimum tax computation?
Industrial Revenue Bond
Ultimate payment of debt service on moral obligation bonds is dependent upon:
Legislative apportionment
Backing of the pledge of revenues from a specific project of the municipality is used for:
Revenue Bond issues
All of the following statements are true regarding municipal bonds EXCEPT: A. Revenue bonds have a higher risk of default than general obligation bonds B. Revenue bonds are backed by the full faith and credit of the issuer C. Interest income received from both general obligations and revenue bonds is exempt from Federal income tax D. General obligation bonds cannot be issued in excess of statutory debt limits
Revenue bonds are backed by the full faith and credit of the issuer
A municipal bond which funds an improvement that benefits only a small portion of the community is a:
Special assessment bond
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
State of Hawaii
All of the following statements regarding the tax equivalent yield of a municipal bond are true EXCEPT: A. tax equivalent yield of a municipal bond varies with customer's tax bracket B. as the customer's tax bracket increases, so does the tax equivalent yield C. as the market price of the bond moves, the tax equivalent yield changes as well D. tax equivalent yield is disclosed on the customer's confirmation
Tax equivalent yield is disclosed on the customer's confirmation
A customer in the 28% tax bracket is considering the purchase of a municipal bond yielding 11% or a corporate bond yielding 16%. Both bonds have similar maturities and credit ratings. Which statement is TRUE? A. The effective yield on the municipal bond is higher B. The effective yield on the corporate bond is higher C. Both effective yields are equivalent D. The coupon rates for each bond are necessary to determine the effective yield
The effective yield on the corporate bond is higher.
A customer in the 28% tax bracket is considering the purchase of a municipal bond yielding 8% or a corporate bond yielding 11%. Both bonds have similar maturities and credit ratings. Which statement is TRUE? A. The effective yield on the municipal bond is higher B. The effective yield on the corporate bond is higher C. Both effective yields are equivalent D. The coupon rates for each bond are necessary to determine the effective yield
The effective yield on the municipal bond is higher.
A customer in the 28% tax bracket is considering the purchase of a municipal bond yielding 9% or a corporate bond yielding 12%. Both bonds have similar maturities and credit ratings. Which statement is TRUE? A. The effective yield on the municipal bond is higher B. The effective yield on the corporate bond is higher C. Both effective yields are equivalent D. The coupon rates for each bond are necessary to determine the effective yield
The effective yield on the municipal bond is higher.
What are sources of income that can be used for debt service on municipal revenue bonds?
User Fees; Special Taxes; Lease Rentals;
Interest income from municipal bonds is:
exempt from Federal tax and subject to state and local tax
Interest income from municipal bonds purchased by a resident of the issuing state is:
exempt from Federal, State and Local Tax
A municipal bond is issued with a covenant that states "if revenue collections are insufficient, the state legislature has the authority, but not the obligation, to make an annual apportionment of funds necessary to meet debt service requirements." This is a :
moral obligation bond
