Unit 6 - Municipal Bonds
A municipal finance professional, who is eligible to vote in a municipality that frequently issues debt securities, has made a contribution to the political campaign of one of the issuer's elected officials. More than which amount would disqualify the firm from engaging in certain municipal businesses with that issuer for two years? A.) $250 B.) $1,000 C.) $100 D.) $5,000
A.) $250
A customer buys a municipal bond at 106 with eight years to maturity. What is the amount of unamortized premium at the end of four years? A.) $30 B.) $36 C.) $50 D.) $40
A.) $30 60/8 = 7.5 7.5 • 4 = 30
When an outstanding bond issue is the subject of a refunding, the holders of those bonds have their claim on any pledged assets terminated. This is known as A.) defeasance. B.) default. C.) termination. D.) replacement.
A.) defeasance.
All of the following may be used to service special tax bond issues except A.) real estate taxes B.) business license taxes C.) excise taxes D.) gasoline taxes
A.) real estate taxes
In most cases, new municipal bond issues are accompanied by a legal opinion. That legal opinion is drafted by bond counsel hired by A.) the municipal issuer. B.) the managing underwriter. C.) the syndicate. D.) the MSRB.
A.) the municipal issuer.
If an M&N 1 corporate bond issued at par with a 6% coupon is later purchased in August for 97 plus accrued interest of $16, how much taxable interest must the investor report for the year? A.) $30 B.) $14 C.) $16 D.) $60
B.) $14
Which of the following factors does not affect the marketability of a municipal bond? A.) Block size B.) Commissions C.) Rating D.) Call protection
B.) Commissions
Which of the following documents would include information about the issuer's financial condition? A.) Trust indenture B.) Official statement C.) Bond resolution D.) Notice of sale
B.) Official statement
All of the following are suitability considerations when a registered representative recommends a municipal bond purchase to a customer except A.) the customer's state of residence being the same as the location of the issuer. B.) whether or not the bond is in the broker-dealer's inventory to sell. C.) the customer's tax bracket. D.) the issuer's debt rating.
B.) whether or not the bond is in the broker-dealer's inventory to sell.
Each of the following securities trade and interest except A.) negotiable CDs. B.) zero coupon bonds. C.) municipal revenue bonds. D.) Treasury bonds.
B.) zero coupon bonds.
All of the following are characteristics of Section 8 bonds except A.) they are backed by the U.S. government. B.) they are also known as Public Housing Authority (PHA) and New Housing Authority (NHA) bonds. C.) they are a type of general obligation bond. D.) they are used to finance subsidized housing.
C.) they are a type of general obligation bond.
Which of the following activities can occur in the municipal bond secondary market? I. Bidding on a new issue II. Retail and institutional transactions III. Establishing the underwriting spread IV. Trades done by a broker's broker A) I and III B) I and IV C) II and IV D) II and III
D) II and III
Because municipal bonds do not trade on any exchange, there is frequently a concern about their marketability. According to most industry experts, which of the following bonds would be the most marketable? A.) $50,000 of State M general obligation bonds rated Aa B.)$5,000 of State O general obligation bonds rated Aa C.) $10,000 of State N general obligation bonds rated AA D.) $100,000 of State L general obligation bonds rated AA
D.) $100,000 of State L general obligation bonds rated AA
If an M&N 1 corporate bond issued at par with a 6% coupon is later purchased in August for 97 plus accrued interest of $16, how much taxable interest must the investor report for the year? A.) $16 B.) $30 C.) $60 D.) $14
D.) $14 The purchaser of a bond pays the seller the interest that has accrued since the last interest payment date. A purchaser in August will pay the interest that has accrued since May 1. Then, on November 1, the investor will receive the entire six months of interest. We are told that the investor paid $16 in accrued interest. That is income to the seller. Then, when the November payment of $30 (6% coupon is $30 semiannually) is made, the investor must report the amount over the accrued interest paid out as income. In our question, that is $30 minus $16 = $14.
Municipal brokers' brokers deal with all of the following except A.) bank dealers. B.) municipal dealers. C.) institutions. D.) individuals.
D.) individuals. **broker's broker = key word
A municipal revenue issue's flow of funds statement is contained in A.) the agreement among underwriters. B.) the legal opinion. C.) the notice of sale. D.) the bond contract.
D.) the bond contract.
Before issuing a revenue bond, an issuer will engage various consultants to prepare a report detailing the need for a particular project. This is generally called A.) the consultant's report. B.) the economic study. C.) the revenue report. D.) the feasibility study.
D.) the feasibility study.
The bond resolution includes all covenants between A.) the issuer and the MSRB B.) the issuer and the bond counsel C.) the bond counsel and the bondholders D.) the issuer and the trustee acting for the bondholders
D.) the issuer and the trustee acting for the bondholders
Municipal bonds that are backed by the income from specific projects are known as A.) revenue bonds. B.) general obligation bonds. C.) debenture bonds. D.) income bonds.
A.) revenue bonds.
A bond resolution would most likely be found in an offering of A.) unrated bonds. B.) municipal bonds. C.) corporate bonds. D.) U.S. Treasury bonds.
B.) municipal bonds.
Under MSRB rules, a broker-dealer must disclose control relationships A.) never B.) only for new issues C.) in all customer transactions D.) only for secondary market transactions
C.) in all customer transactions
Which of the following is federally tax exempt for a corporation A.) preferred stock dividends B.) foreign corporate stock dividends C.) municipal bond interest D.) capital gains
C.) municipal bond interest
One of the most common cases of overlapping municipal debt is when a city's portion of the debt is shared with A.) the federal government B.) the state C.) the county D.) the revenue authority
C.) the county
A municipal issuer's net total debt is made up of which of the following? I. Direct debt II. Defeased debt III. Overlapping debt IV. Paid-up debt A.) III and IV B.) I and II C.) II and III D.) I and III
D.) I and III
A legal opinion that has restrictions placed on it by the municipality's bond counsel is called A.) an unqualified opinion. B.) a contingent opinion. C.) a restricted opinion. D.) a qualified opinion.
D.) a qualified opinion.
It is not uncommon for municipal revenue bonds to have a catastrophe call provision. Another term that might be used to refer to this provision is A.) an unexpected call. B.) a premium call. C.) an unplanned call. D.) an extraordinary call.
D.) an extraordinary call.
All of the following sources of revenue could be used to service general obligation debt except A.) ad valorem taxes. B.) sales taxes. C.) fines. D.) user charges.
D.) user charges.
A town's ad valorem tax rate is 20 mills on 60% of the assessed value. Your client owns a property with a market value of $500,000, and the town has assessed it at $400,000. The taxes due on this property are A.) $4,800. B.) $480. C.) $8,000. D.) $800.
A.) $4,800. 60% of $400,000 = $240,000 $240,000 • $0.02 = $4,800
The real value of property within the city limits is $100 million. The city uses a 50% assessment rate. A 10 mill tax rate will provide tax revenues of A.) $500,000. B.) $5,000. C.) $1,000,000. D.) $50,000.
A.) $500,000. 100,000,000 • 50% = 50,000,000 50,000,000 / 1,000 = 50,000 50,000 • 10 = 500,000
The MSRB classifies municipal securities into two categories: notes and bonds. They define bonds as any municipal debt security with a maturity of A.) 3 years or more. B.) 2 years or more. C.) 10 years or more. D.) 1 year or more.
A.) 3 years or more.
An abstract of a municipal securities issue official statement must be maintained on file for how long? A.) 4 years B.) There is no requirement to file abstracts of official statements. C.) 5 years D.) 12 months
A.) 4 years
A corporate bond pays interest on a J/J 15 schedule. An investor purchasing these bonds on Friday, April 17, would pay accrued interest for A.) 96 days. B.) 92 days. C.) 95 days. D.) 91 days.
A.) 96 days.
Which of the following statements regarding Section 529 education savings plans are true? I. Contributions are considered gifts under federal law. II. Contributions are tax deductible under federal law. III. Earnings generated are taxable each year. IV. Earnings generated are tax deferred. A.) I and IV B.) I and III C.) II and IV D.) II and III
A.) I and IV
If an indenture has a closed-end provision, this means A.) additional issue will have junior liens B.) additional issues have no lien on the revenue stream C.) a sinking or surplus fund must be established D.) the bonds must be called before maturity
A.) additional issue will have junior liens
According to the MSRB rules, a control relationship would exist between a municipal securities firm and an issuer when A.) an officer of the firm is in a position of authority over the issuer B.) senior officers live in the municipality C.) the firm recently completed a negotiated underwriting for the municipality D.) the firm has an inventory of the issuer's bonds
A.) an officer of the firm is in a position of authority over the issuer
Variable-rate municipal bonds are subject to all of the following risks except A.) interest rate. B.) default. C.) liquidity. D.) market.
A.) interest rate.
A bond resolution would most likely be found in an offering of A.) municipal bonds. B.) corporate bonds. C.) unrated bonds. D.) U.S. Treasury bonds.
A.) municipal bonds.
An investor in a high-income tax bracket owns a number of municipal bonds and wants to add some to a 401(k) plan he participates in and perhaps his IRA. As a registered representative, you would advise that this is A.) not suitable because the interest payments from municipal bonds are tax free already and have no place in a tax-advantaged (tax-deferred) account such as a 401(k) plan or IRA. B.) not suitable because the investor already owns municipal bonds, and this would be a duplication of the same asset class in his tax-advantaged accounts. C.) suitable due to his high-income tax bracket. D.) suitable because the investor already understands the advantages of owning tax-free interest paying instruments without any further suitability qualifications needed.
A.) not suitable because the interest payments from municipal bonds are tax free already and have no place in a tax-advantaged (tax-deferred) account such as a 401(k) plan or IRA.
All of the following statements regarding a municipality's debt limit are true except A.) that the debt limit is the maximum amount a municipality can borrow in any one year. B.) that revenue bonds are not affected by statutory limitations. C.) that the purpose of debt limits is to protect taxpayers from excessive taxes. D.) that unlimited general obligation bonds may be issued when a community's taxing power is not restricted by statutory provisions.
A.) that the debt limit is the maximum amount a municipality can borrow in any one year. The debt limit is the maximum amount of debt a municipality can have.
The yield to maturity of an outstanding revenue bond has just fallen from 3.8% to 3.4%. All of the following could explain the drop except A.) the bond's debt coverage ratio has fallen. B.) the bond has added insurance. C.) the bond's rating has improved. D.) market interest rates have fallen.
A.) the bond's debt coverage ratio has fallen. A falling debt coverage ratio is bad news because it indicates that the facility is not generating as much revenue as planned. It would be similar to the effect on your credit rating if you took a 20% or so pay cut. When a bond's rating goes up, the added safety means less risk and that will lead to a lower yield to investors. If interest rates in the market drop, the yields of outstanding bonds will reflect that. Adding insurance to a bond always increases the safety and leads to lower yields.
A customer purchases an XYZ municipal bond at 108. It is scheduled to mature in 16 years. After owning the bond for 10 years, she sells the bond at 102. What capital gain or loss must she report for tax purposes at the time of the sale? A.) $60 loss B.) $10 gain C.) $20 gain D.) $10 gain
B.) $10 gain Municipal bond was purchased at a premium and the premium must be amortized over time until maturity An $80 premium on a 16 year municipal bond indicates $5 will be amortized each year (80/16 = $5). 10 years => $50 of amortization. $1080 - $50 = $1030 and sale of $1020 => $10 loss
For an investor in the 37% federal income tax federal income, the tax-equivalent yield of a general obligation municipal bond w/the coupon rate of 4.17% is A.) 2.63% B.) 6.62% C.) 5.72% D.) 11.27%
B.) 6.62% 4.17/(100-37) = 0.062 = 6.62%
A corporate bond pays interest on a J/J 15 schedule. An investor purchasing these bonds on Friday, April 17, would pay accrued interest for A.) 92 days. B.) 96 days. C.) 91 days. D.) 95 days.
B.) 96 days. J/J 15 schedule means the bond pays interest on January and July 15 We are assuming 30 day month (because of corporate and municipal bonds) the accrued interest is paid from the previous interest payment date up to but not including the settlement date. Trade made of Friday the 17th settles on Tuesday April 21. The previous interest payment was Jan 15 4/21-1/15 = 3 months plus 6 days
The ratio of taxes collected to taxes levied might be used in the analysis of which of the following bonds? A.) Industrial development revenue B.) General obligation C.) Pollution control D.) Water control
B.) General obligation
If an investor is in the highest federal income tax bracket and is subject to the alternative minimum tax (AMT), which of the following securities should an agent recommend? A.) Industrial revenue bond B.) General obligation (GO) bond C.) Corporate bond D.) Treasury bond
B.) General obligation (GO) bond
If an investor were to purchase a bond in the secondary market several years after the public offering, which of the following would factor in calculating the total dollar amount paid for the bond? I. Settlement date II. Dated date III. Coupon IV. Scale A.) II and III B.) I and III C.) II and IV D.) I and IV
B.) I and III To calculate the accrued interest, you must know the settlement date. The dated date is only relevant for the first interest payment, so it would not apply to this trade.
One of your customers called you with the good news that they are new grandparents. They are looking for a way to provide funds for the new child's college education and would like some kind of tax break if possible. What would be the most suitable suggestion? A.) Donate money to an UTMA account naming the child's parent as custodian B.) Start a Section 529 plan for the child C.) Purchase zero-coupon bonds maturing in 18-20 years D.) Start an IRA in the child's name and make annual contributions on the child's behalf.
B.) Start a Section 529 plan for the child
With regard to municipal bonds, an extraordinary call is most commonly invoked when A.) property tax proceeds exceed expectations enabling the municipality to retire its GO bonds ahead of schedule. B.) a catastrophe destroys the facility backing a revenue bond. C.) the economic cycle indicates that interest rates will be sharply increasing. D.) it appears that the issuer's credit rating will be downgraded.
B.) a catastrophe destroys the facility backing a revenue bond.
A customer buys a new issue municipal bond at a discount. If held to maturity, the amount of the discount is A.) taxed as a long-term capital gain. B.) accreted and is not taxed. C.) accreted and taxed as ordinary income. D.) taxed as a short-term capital gain.
B.) accreted and is not taxed.
According to Municipal Securities Rulemaking Board (MSRB) rules, if a municipal securities broker-dealer receives an advisory fee from an issuer, it must notify, in writing, any of its customers purchasing bonds issued by that municipality of A.) a negative outlook from Standard & Poor's. B.) any advisory relationship existing between itself and the issuing municipality. C.) the placement ratio. D.) all of these.
B.) any advisory relationship existing between itself and the issuing municipality.
You sell a municipal bond that has been advance refunded. It will be called at 102 four years from now. On the confirmation, the yield must be stated as the yield to A.) maturity or yield to call, whichever is lower B.) call C.) maturity D.) maturity or yield to call, whichever is higher
B.) call
Investors who are subject to the alternative minimum tax (AMT) will lose the tax benefits normally associated with A.) tax preference items. B.) capital losses. C.) gains associated with variable annuity portfolios. D.) losses on options positions.
B.) capital losses.
All of the following are regulated by the Municipal Securities Rulemaking Board (MSRB) except A.) quotes. B.) issuers. C.) dealers. D.) sales representatives.
B.) issuers.
A statutory debt limitation restricts a municipality's authority regarding A.) selling revenue bonds. B.) issuing general obligation (GO) bonds. C.) insuring bond issues. D.) raising tax rates.
B.) issuing general obligation (GO) bonds.
A broker's broker does all of the following except A.) assists in placing securities. B.) makes a market in securities. C.) acts as agent for dealers. D.) conceals the identity of the principals.
B.) makes a market in securities.
Expressed as a percentage of par, one basis point equals A.) one-tenth of 1%. B.) one-one hundredth of 1%. C.) one-one thousandth of 1%. D.) 10%.
B.) one-one hundredth of 1%.
The call premium on a municipal bond trading above par is best described as the difference between A.) the market price and the call price. B.) par and the call price. C.) the amortized premium and the annual interest. D.) the market price and par.
B.) par and the call price.
When a municipality is allocating funds from a revenue-producing facility under a net revenue pledge, the first priority is to A.) establish a reserve for bond retirement. B.) pay operations and maintenance. C.) pay debt service, including principal and interest. D.) accumulate a surplus for facility expansion.
B.) pay operations and maintenance.
The call provisions of a municipal issue would be detailed most completely in A.) the legal opinion B.) the bond resolution C.) the official notice of sale D.) the Bond Buyer
B.) the bond resolution
Covenants in the trust indenture of a municipal revenue bond are promises made by the issuer to the bondholders. All of the following are potential covenants except A.) the rate covenant B.) the interest rate covenant C.) the insurance covenant D.) the maintenance covenant
B.) the interest rate covenant Will be stated but not in the form of a covenant
All of the following are characteristics of Section 8 bonds except A.) they are used to finance subsidized housing. B.) they are a type of general obligation bond. C.) they are backed by the U.S. government. D.) they are also known as Public Housing Authority (PHA) and New Housing Authority (NHA) bonds.
B.) they are a type of general obligation bond.
An investor has purchased a municipal certificate of participation (COP). COPs can be characterized by all of the following except A.) they are a form of municipal revenue bond. B.) they would require voter approval before a municipality could issue them. C.) the holder of the COP participates in lease or loan payments from a specific piece of equipment or facility purchased or built by the municipality. D.) the holder of a COP could foreclose on the asset generating the revenue in the case of default.
B.) they would require voter approval before a municipality could issue them.
A couple's home has an assessed value of $40,000 and a market value of $100,000. What will the tax be if a rate of 5 mills is used? A.) $500 B.) $2,000 C.) $200 D.) $5,000
C.) $200 Real property tax is based on the assessed value assigned to the property by the municipality's tax assessor (in this case, $40,000). Property tax rates use the mill as a base unit. One mill equals $1 of tax per year for each $1,000 of assessed value. Five mills would equal $5 for each $1,000 of assessed value. Because there are 40 thousands, 40 × $5 equals $200 in annual tax. A shortcut method is as follows: take the assessed value, remove the last three 0s, and multiply by the number of mills of tax ($40 × 5 mills = $200).
If your customer bought an original issue discount bond from the Mount Vernon Port Authority, how is the discount on this bond taxed? A.) Amortized during the life of the bond and not taxed B.) As ordinary income C.) Accreted during the life of the bond and not taxed D.) As capital gains
C.) Accreted during the life of the bond and not taxed
Municipal Securities Rulemaking Board (MSRB) rules for NYSE member firms are enforced by A.) the NYSE. B.) the MSRB. C.) FINRA. D.) the SEC.
C.) FINRA.
An investor is considering purchasing a bond. He has decided on either a 6% municipal bond offered by the state in which he lives or an 8% corporate bond offered by a company with headquarters in his state. He would like you to help him decide which bond will get him the greatest return for his investment. Which of the following items of information must you obtain before you can make a specific recommendation? A.) His net worth B.) How long he has been a resident of his state C.) His tax bracket D.) What other securities he owns
C.) His tax bracket
A bank doing which of the following would not be required to register as a municipal broker-dealer with FINRA? A.) Underwriting municipal securities for municipal issuers B.) Providing investment research regarding municipal securities to public investors C.) Holding municipal securities as custodian for public customers D.) Engaging in transactions to purchase or sell municipal securities for public customers
C.) Holding municipal securities as custodian for public customers
Seventy-five basis points are equal to which of the following? I. 0.75% II. 7.5% III. $7.50 IV. $75.00 A.) II and IV B.) II and III C.) I and III D.) I and IV
C.) I and III
Which of the following statements regarding the flow of funds found within a municipal trust indenture are true? I. It describes the disbursement of funds for revenue bond issues. II. It describes the disbursement of funds for general obligation issues. III. It is found within the official statement. IV. It is found within the bond contract. A.) I and III B.) II and III C.) I and IV D.) II and IV
C.) I and IV
A legal opinion evaluates which of the following features of a municipal issue? I. Marketability II. Legality III. Tax-exempt status IV. Economic feasibility A.) I and III B.) I and IV C.) II and III D.) II and IV
C.) II and III
Which of the following would be considered in analyzing the credit worthiness of a revenue bond issuer? I. Per capita debt II. Debt service coverage III. Management IV. Debt to assessed valuation h A.) I and IV B.) I and II C.) II and III D.) III and IV
C.) II and III
Which of the following investment vehicles has the highest credit risk? A.) New Housing Authority bonds B.) General obligation bonds C.) Industrial revenue bonds D.) Ginnie Mae pass-through certificates
C.) Industrial revenue bonds
Which of the following statements regarding a bond trading flat is not true? A.) It may be an income bond. B.) It may have interest in arrears. C.) It may be traded with accrued interest. D.) It may be a bond in default.
C.) It may be traded with accrued interest.
You are having a discussion with one of your clients regarding suitable investments. The client is in a high-income tax bracket and has a high net worth as well. During the conversation, your client mentions several investments that she is thinking about that might be beneficial to her now. Of those listed, which would be the best recommendation? A.) A corporate blue-chip balanced mutual fund B.) A real estate investment trust (REIT) C.) Municipal bonds D.) Noninvestment-grade corporate bonds
C.) Municipal bonds
A client is trying to decide between a par value corporate bond carrying a coupon rate of 6.25% per year and a par value municipal bond that pays an annual coupon rate of 4.75%. Assuming all other factors are equal, and your client is in a 28% marginal income tax bracket, which bond do you tell the client to purchase? A.) The corporate bond because the after-tax yield is 6.25%. B.) The municipal bond because its equivalent taxable yield is 6.3%. C.) The municipal bond because its equivalent taxable yield is 6.6%. D.) The corporate bond because the after-tax yield is 4.5%.
C.) The municipal bond because its equivalent taxable yield is 6.6%.
Which of the following details would not be found on the bond resolution for a revenue bond? A.) The rate covenant B.) The insurance covenant C.) The tax covenant D.) The maintenance covenant
C.) The tax covenant
An investor purchased a municipal bond at par to yield 5.5% to maturity. If, two years later, she sold the bond at a price equivalent to a 5% yield to maturity, the investor incurred A.) taxable interest income. B.) a capital loss. C.) a capital gain. D.) no taxable result at this time.
C.) a capital gain. Because the investor sold the bond at a price that will yield less than the yield when she purchased the bond, the bond must have been sold for more than the investor paid for it. Therefore, the investor profited by that difference. Remember, the higher the price, the lower the yield.
An investor buys a municipal bond at a discount. The bond carries a 3% coupon. At maturity, the bond will pay the face amount to the holder of the bond on the maturity date. In the meantime, the IRS requires accretion of the discount. That accretion is tax-exempt income when the bond is A.) a bond purchased in the secondary market at a discount. B.) a bond issued at par, but purchased in the secondary market at a discount. C.) an original issue discount bond. D.) a general obligation bond.
C.) an original issue discount bond.
All of the following are allowable municipal dealer quotes except A.) bonda fide quotes B.) requests for bids only C.) an unidentified nominal quote D.) requests for offers only
C.) an unidentified nominal quote
A customer buys a newly issued municipal zero-coupon original issue discount bond for 85. If the bond is held until maturity, the tax consequence A.) is $150 loss. B.) cannot be calculated from the information given. C.) is $0. D.) is $150 gain.
C.) is $0 Municipal original issue discount bonds must be accreted. At maturity, the entire discount will be accreted, and the cost basis will be equal to the par value. No gain or loss will occur at maturity.
Net overall debt of a municipality is A.) funded debt plus overlapping debt. B.) funded debt minus overlapping debt. C.) net direct debt plus overlapping debt. D.) net direct debt minus overlapping debt.
C.) net direct debt plus overlapping debt.
State and local government securities (SLGS) are purchased by A.) commercial banks B.) institutions C.) state and local governments D.) accredited investors
C.) state and local governments SLGS securities are purchased by municipal issuers that are subject to IRA yield restrictions when they invest the proceeds of a prerefunding. The monies placed in escrow are invested in SLGS which are government securities whose interest rates are arranged to comply with IRS restrictions
All of the following municipal securities are quotes on a yield basis except A.) serial bonds B.) tax anticipation notes C.) term bonds D.) secured bonds
C.) term bonds term bonds are quoted as a percentage of par
New Housing Authority (NHA) bonds are a relatively safe investment because A.) banks buy these bonds. B.) rental income provides a hedge against inflation. C.) the U.S. government guarantees a contribution to secure the bonds. D.) they are backed by the full faith and credit of the issuing municipalities.
C.) the U.S. government guarantees a contribution to secure the bonds.
The date on which the interest on a new municipal issue begins accruing is A.) the settlement date. B.) the delivery date. C.) the dated date. D.) the closing date.
C.) the dated date.
Before issuing a revenue bond, an issuer will engage various consultants to prepare a report detailing the need for a particular project. This is generally called A.) the consultant's report B.) the revenue report C.) the feasibility study D.) the economic study
C.) the feasibility study
A municipal bond rating service would consider all of the following when evaluating a revenue bond except A.) operating revenues. B.) the debt service coverage ratio. C.) the public's attitude toward debt. D.) feasibility studies.
C.) the public's attitude toward debt.
All of the following might affect the credit rating of a municipal revenue issue except A.) the debt service coverage ratio. B.) the rate covenants set forth in the indenture. C.) the tax rates of nearby municipalities. D.) the quality of the facilities management.
C.) the tax rates of nearby municipalities.
Which of the following would be of least concern to a registered representative recommending a municipal security to a customer? A.) Customer's state of residence B.) Customer's tax status C.) Municipal security's rating D.) Availability of the security
D.) Availability of the security
Which of the following is considered a double-barreled bond? A.) Moral obligation bonds B.) Dome stadium bonds with provisions for emergency ceiling support C.) Build America Bonds D.) Bridge authority revenue bonds guaranteed by the full faith and credit of a city
D.) Bridge authority revenue bonds guaranteed by the full faith and credit of a city
Tax preference items are used for the purpose of computing the alternative minimum tax. They include I. excess intangible drilling costs (wages, fuel, repairs). II. accelerated depreciation. III. percentage depletion in excess of basis. A.) II and III B.) I and III C.) I and II D.) I, II, and III
D.) I, II, and III
Which of the following may only be accomplished after applying the additional bonds test for a revenue bond? A.) Increasing the project's user charges B.) Spending revenues already allocated for project expansion C.) Prerefunding an outstanding bond issue D.) Issuing new bonds with an equal lien on the project's revenues
D.) Issuing new bonds with an equal lien on the project's revenues
Which of the following types of municipal bond issues is associated with a flow of funds? A.) Tax anticipation notes (TANs) B.) General obligation (GO) bonds C.) School district bond D.) Revenue bonds
D.) Revenue bonds
In safety of principal, general obligation municipal bonds are considered second only to A.) preferred stock. B.) AAA-rated corporate bonds. C.) common stock. D.) U.S. government and agency bonds.
D.) U.S. government and agency bonds.
In safety of principal, general obligations municipal bonds are considered second only to A.) AAA-rated corporate bonds B.) common stock C.) preferred stock D.) US government and agency bonds
D.) US government and agency bonds
Benefits of a municipal bond advance refunding include A.) a decrease to the issuer's current interest cost. B.) a higher rating and lower coupon rate. C.) tax savings. D.) a higher rating and greater marketability.
D.) a higher rating and greater marketability.
Accrued interest for U.S. government bonds is computed on the basis of A.) 31-day months. B.) SEC accrued interest guidelines. C.) 30-day months. D.) actual days elapsed.
D.) actual days elapsed.
One of the benefits of adding a sinking fund provision to a municipal bond issue is that the bond will generally A.) be issued without a call provision. B.) have a longer maturity. C.) receive more favorable tax treatment. D.) be issued with an interest rate lower than without the sinking fund.
D.) be issued with an interest rate lower than without the sinking fund.
You sell a municipal bond that has been advance refunded. It will be called at 102 four years from now. On the confirmation, the yield must be stated as the yield to A.) maturity or yield to call, whichever is lower. B.) maturity or yield to call, whichever is higher. C.) maturity. D.) call.
D.) call. Municipal Securities Rulemaking Board rules require that, when a call date has been fixed by a prerefunding, the yield to call so fixed must be reflected on the confirmation statement. Because of the prerefunding, this bond issue will be called at the call date. There is no uncertainty surrounding this event. Therefore, it is appropriate to price the bond to the call date. The old maturity on the bond has no further significance.
An insured municipal bond is purchased by your client in the secondary market. After the sale, Municipal Securities Rulemaking Board rules would require you to A.) send a copy of the official statement. B.) indicate that the bonds are insured on the confirmation because this is the only requirement. C.) include a copy of the insurance policy with delivery of the certificates. D.) make delivery of the certificates accompanied by evidence of insurance, either on the face of the certificates or in a separate document.
D.) make delivery of the certificates accompanied by evidence of insurance, either on the face of the certificates or in a separate document.
