Unit 3

$______ is the maximum political contribution allowed under MSRB rules for those eligible to vote in the municipality issuing debt on a negotiated basis.

$250

Your firm is a member of an underwriting syndicate for an issue of municipal bonds. The municipal syndicate release terms letter states that the bonds are being offered net, with a 2-point concession and a ½-point additional takedown. If your firm sells $100,000 of these bonds to a retail customer, it will receive a credit of:

$2500

If an investor in the 27% federal marginal income tax bracket invests in municipal general obligation public purpose bonds nominally yielding 4.5%, what is the tax equivalent yield?

0.0616. (4.5 divided by (100-27))

Municipal securities principals are required to approve

1. all new customer accounts 2. all municipal transactions 3 the handling of customer complaints.

A bond with 25 years to maturity, 7% coupon, quoted on a 6.25% basis is callable in 10 years at 103, 15 years at 102, and 20 years at par. On the customer's confirmation, the dollar price quoted must be based on:

10 years to call. (This is a premium bond. With premiums, the YTC will be lower than the YTM. The question becomes which call date should be used. As a rule of thumb, always use the near term (first) in-whole call date.)

An abstract of a municipal securities issue official statement must be maintained on file for _______ years

3

While municipal bonds can be suitable for those in higher income tax brackets, they have no place in tax-advantaged (tax-deferred) accounts such as _____________ because the interest paid is already tax free.

401 Ks and IRAs

Which of the following competitive bids on a new municipal issue is most likely to be awarded the bid? 7% coupon with no premiums over par. 8% coupon with premiums over par. 6% coupon with no premiums over par. 6% coupon with premiums over par

6% coupon with premiums over par. (In a competitive bid bond sale, the winning bid is the one that provides the issuer with the lowest net interest cost. If the syndicate pays the issuer more than par for the bonds, the issuer is taking in more money than it must pay out at maturity. Therefore, its net interest cost is lower than the 6% coupon on the bonds.)

However, the exception is when banks purchase certain issues of municipal GO bonds (i.e., bank qualified), for which the rules allow the bank to deduct _______% of the interest-carrying cost.

80%

Who signs an official statement for a new municipal issue?

An official or officials of the issuer.

All of the following statements regarding municipal advertising are true EXCEPT: A)it must not be misleading. B)copies must be sent to the MSRB. C)copies must be kept for 3 years. D)it must be approved by a principal.

B)copies must be sent to the MSRB.

The MSRB is authorized to adopt rules concerning all of the following EXCEPT the: A) sale of new issues to related portfolios. B) form and content of price quotations. C) information to be provided by municipal issuers. D)regulation of municipal securities advertising.

C) information to be provided by municipal issuers.

____________ back up IDRs, which means the credit of the bond is as good as the credit of the corporation that signs the net lease.

Corporate net leases

MSRB rules for NYSE member firms are enforced by:

FINRA

What are short-term municipal notes issued in anticipation of funds via grants that the municipality is expecting from the federal government?

Grant anticipation notes (GANs)

A municipal bond dealer is making a bona fide quote. Which of the following statements regarding such a quote is TRUE? I.The quote must have a reasonable relationship to fair market value. II.The quote may take into consideration any anticipated market movement. III.The quote cannot represent an offer to sell bonds the dealer does not currently own. IV.The quote need not be one that the dealer is prepared to act upon (buy or sell).

I and II

Investment banks or bankers I.assist corporations in raising capital II.assist municipalities in raising capital III.accept deposits IV.make loans to individual customers

I and II

MSRB rules state that a customer confirmation must indicate which of the following? I. Whether the trade was made as an agency transaction II. Whether the sale was made from the dealer's inventory III. The amount of the dealer's markup or markdown IV. The location of the trust indenture.

I and II

The function of a broker's broker in the municipal bond business is to do which of the following? I. Help sell municipal bonds that a syndicate has been unable to sell. II. Protect the identity of the firm on whose behalf the broker's broker is acting. III. Help prepare bids for an underwriting syndicate. IV. Serve as a wholesaler, offering bonds at a discount from the current bid and offer.

I and II

Under MSRB rules regarding municipal securities, a control relationship exists when I. officers or employees of a broker/dealer hold positions of authority over the municipal issuer. II. officials of the municipal issuer hold policymaking positions at the broker/dealer. III. the municipal issuer is a public finance client of the broker/dealer. IV. an employee of the broker/dealer lives in the issuer's municipality.

I and II

A registered representative mentions a particular 6% municipal bond quoted on a 6.5% basis. Which of the following is correct? I.6% is the bond's coupon. II.6% is the bond's current yield. III.6.5% is the bond's yield to maturity. IV.6.5% is the bond's current yield.

I and III

In a competitive bid, which of the following would the issuer need to determine net interest cost? I. Coupon rates. II. Basis. III. Dollar price. IV. Spread.

I and III

The purchaser of a GO municipal bond should be concerned with I.property tax assessments II.the maintenance covenant III.market risk IV.feasibility studies

I and III

Which of the following are TRUE of municipal securities quotations? I.A quotation can be an indication of interest. II.A quotation cannot be an indication of interest. III.A quotation can be a one-sided request for a bid or offer (bids wanted and offers wanted). IV.A quotation cannot be a one-sided request for a bid or offer (bids wanted and offers wanted).

I and III

Which of the following are TRUE of the GO "Bond" Index? I. It includes only GO bonds. II. It includes both GO bonds and revenue bonds. III. It is computed weekly. IV. It is computed monthly.

I and III

Which of the following does the MSRB require on customer confirmations? I.Name and telephone number of the broker/dealer II.Amount of markdown or markup on a principal transaction III.Amount of any commission received on an agency transaction IV.The current credit rating of the issuer

I and III

Which of the following is NOT under governance of the MSRB? I. Issuers of municipal fund securities. II. Broker/dealers that sell municipal fund securities. III. Issuers of municipal bonds. IV. Banks that sell municipal securities.

I and III

Which of the following statements regarding municipal revenue bond issues are generally TRUE?I. The bonds' feasibility is dependent on the earnings potential of the facility or project. II. The bonds are backed by unlimited taxing power of the issuer. III. User fees provide revenue for bondholders. IV. Revenue bonds are most suitable for investors with high risk tolerance.

I and III

Which of the following statements regarding the good faith deposit submitted by interested bidders are TRUE? I. It is usually 1% to 2% of the total par value of the bonds offered. II. It is usually 10% of the total par value of the bonds offered. III. If the bid is unsuccessful, it is returned to the underwriting syndicate. IV. If the bid is unsuccessful, it is retained by the issuer.

I and III

Question ID: 605423 If a broker/dealer is acting as a financial advisor to a municipality, which of the following statements is TRUE? I.MSRB rules prohibit the broker/dealer from acting as an underwriter for the issuer unless they meet the criteria of specific allowable exceptions. II.The broker/dealer can act as both financial advisor and underwriter with no limitations. III.The broker/dealer may only act in an underwriting capacity if the underwriting agreement was done as a negotiated underwriting. IV.There are some underwriting functions that the broker/dealer in their advisory capacity may be allowed to participate in such as assisting with the preparation of the official statement.

I and IV

A municipal dollar bond is quoted at 98¼ to 98¾. The municipal dealer's spread is equal to I.$5.00. II.$50.00. III.5 basis points. IV.50 basis points.

I and IV (The spread is ½ point. In each point, which is worth $10, there are 100 basis points. Therefore, ½ point is worth $5 and represents 50 basis points.)

A legal opinion evaluates which of the following features of a municipal issue? I. Marketability. II. Legality. III. Tax-exempt status. IV. Economic feasibility.

II and III

New issues of municipal securities are available in which of the following forms? I. Bearer. II. Book entry. III. Registered. IV. Registered as to principal only.

II and III

To determine the winning bid on an NIC (net interest cost) basis, an issuer will do which of the following? I.Add any premium to total interest cost. II.Subtract any premium from total interest cost. III.Add any discount to total interest cost. IV.Subtract any discount from total interest cost.

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.

II and III

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

II and IV

Which of the following are considered sources of debt service for GO bonds? I.Tolls on roads II.Real estate taxes III.Revenue generated by a hospital IV.Liquor license fees

II and IV

Which of the following describe an underwriter's financial liability if a syndicate is established as an Eastern account? I. Divided liability to purchase securities from the issuer. II. Undivided liability to purchase securities from the issuer. III. Divided responsibility for securities that remain unsold. IV. Undivided responsibility for securities that remain unsold.

II and IV

Which of the following responsibilities did the MSRB receive through the Securities Acts Amendments of 1975? I. Regulation of municipal issuers. II. Establishment of recordkeeping requirements for municipal broker/dealers. III. Enforcement of any municipal regulations it adopts. IV. Creation of regulations for participants in the municipal securities secondary market.

II and IV

Which of the following terms refer to municipal bond underwritings? I. Standby. II. Best efforts. III. Preliminary prospectus. IV. Firm commitment.

II and IV

In a municipal offering, which of the following would ordinarily be found in the agreement among underwriters? I.The legal opinion II.The appointment of the bond counsel III.The concession IV.The takedown

III and IV

The interest from which of the following bonds is subject to federal income tax? I. State of Nebraska. II. City of Duluth. III. Treasury notes. IV. FNMA.

III and IV

Which of the following are TRUE of an official statement?I. It is required by the SEC for all new issues. II. It is required by the MSRB for all new issues. III. It is required to be delivered to purchasers at or before settlement. IV. It is generally used by underwriters to help sell the issue.

III and IV

For municipal bond transactions, data captured and made available to the market place is done by ?

RTRS

A bond confirmation will show ______ if the bond has been called under an in-whole call provision.

YTC

A customer's confirmation for a municipal bond callable at par and quoted higher than the nominal yield would show:

YTM (think of triangle)

With callable municipal bonds, the confirmation must show the lower of the ______.

YTM or YTC.

A municipal bond is offered at a discount. It has a 30-year maturity and is callable in 20 years at par. It is callable in 5 years at a premium and is puttable in 10 years at par. Which of the following yields would be quoted on this basis?

Yield to the 30-year maturity. (Bonds that sell at a discount are always quoted as yield-to-maturity)

An investor purchased a municipal bond at par to yield 5.5% to maturity. If, two years later, he sold the bond at a price equivalent to a 5% yield to maturity, the investor incurred a capital ______:

a capital gain.

A customer has written a letter of complaint to the dealer. On receipt of the complaint, a municipal securities dealer must first:

accept the complaint and record the action taken.

A Municipal Finance Professional (MFP) is

an associate of a broker dealer engaged in municipal securities representative activities, other than retail sales.

Bond anticipation notes are short-term money market instruments. Interest is paid ________.

at maturity

An issuer will call the higher coupon bonds before or after calling the lower coupon bonds?

before

Who attests to the legality of a bond issue and issues a legal opinion on a proposed new municipal bond issue?

bond counsel

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:

call

Condemnation is considered a _________- and only applies to revenue bonds.

catastrophe

The total takedown has two components:

concession and additional takedown.

A confirmation to a customer purchasing a new issue of municipal securities must disclose all of the following EXCEPT: 1. coupon rate and maturity 2. current yield 3. settlement date 4. customers name

current yield

total of interest and principal payable by the issuer plus any amount required to be deposited into a sinking fund.

debt service

Call premiums tend to _________ over time.

decrease

What is a bond that has its principal and interest backed by revenues of a facility and the general taxing authority of a municipality.

double-barreled bond

Before a firm distributes a prepared summary official statement for a new issue of municipal bonds to customers, it must have the written approval of the firm's municipal securities principal, issuer, MSRB, or the bond attorney?

firm's municipal securities principal.

If the dollar price of a municipal bond is 101 and, at that price, the basis is 6.10, the nominal yield is smaller, the same or greater than 6.10?

greater than 6.10

An order confirmed for the entire underwriting syndicate's benefit is called a:

group net order

An investor in the 28% income tax bracket is considering purchasing either a 4% municipal bond or a 5% corporate bond. The municipal bond's yield is ________ than the corporate bond's yield.

higher

Because interest from municipal bonds is tax free, they benefit those in _______ tax brackets the most.

higher

Interest received from municipal bonds make them more appropriate for investors with ________ objectives rather than growth objectives.

income

the bond with the _____ call price will likely be called first.

lower

A normal scale of prices consists of ________ yields on short-term maturities and ______ yields on longer maturities

lower;higher

A broker's broker does not

make a market in securities.

The MSRB governs the practices of underwriting and trading municipal bonds. It does not govern _____________

municipal issuers.

According to MSRB rules, a separately identifiable division of a bank engaging in the sale and /or underwriting of securities issued by state and local governments is acting as a(n):

municipal securities dealer

Which of the following projects is most likely to be financed by a general obligation rather than a revenue bond? 1. expansion of an airport 2 new school 3. public golf course 4. municipal hospital

new school

An unqualified legal opinion means that the bond counsel found

no problems with the issue.

All of the following deal with the secondary market EXCEPT: 1. offering sheets 2. Real time transaction reporting system (rttrs) 3. brokers broker 4. notice of sale

notice of sale

Investor information about the financial condition of a municipal issuer is most likely found in the:

official statement.

A municipal bond subject to a refunding call must be quoted at yield-to-call when a bond at a __________ callable at ___________.

premium;par

According to the MSRB rules, a registered representative can not train other....

registered representatives

The call provisions of a municipal issue would be detailed most completely in the: 1. The Bond Buyer 2. legal opinion 3. the bond resolution 4.official notice of sale

the bond resolution

The portion of a municipal bond underwriting spread that remains after the syndicate manager subtracts the management fee is:

the total takedown

a poor collection ratio might mean the municipality is likely

to default on its revenue bonds.

An investor anticipating a rise in interest rates would likely purchase:

variable rate demand obligations (VRDOs) or reset bonds

According to MSRB rules, may a municipal securities representative give $50 crystal vases to 10 of his favorite clients?

yes