Ch. 3 Test

All of the following deal with the secondary market EXCEPT A. dealer quotes B. broker's broker C. notice of sale D. Thomson municipal Market Monitor

C. A notice of sale is published to provide syndicates with information on proposed new, or primary market, issues.

Municipal broker's broker deal with all the following EXCEPT A. bank dealers B. municipal dealers C. individuals D. institutions

C. As the term suggests, a municipal broker's broker deals with other dealers and institutions, not with the general public.

Which of the following types of municipal bond issues are associated with the flow of funds? A. TANs B. general obligation bonds C. Revenue bonds D. all of the above

C. Revenue Bonds

If IDB bonds are called because of condemnation, this would be covered under which of the following clauses in the bond indenture? A. Defeasance B. Refunding C. Catastrophe D. Refinancing

C.condemnation is considered a catastrophe and applied only to revenue bonds.

Which of the following would be found in the agreement among underwriters for a municipal bond offering? I. Legal opinion II. Amount of the concession III. Appointment of the bond counsel IV. Establishment of the takedown A. I and III B. I and IV C. II and III D. II andIV

D. The agreement among underwriters describes the rights, duties, and commitments of the syndicate members with respect to the securities being underwritten. It appoints the syndicate manager to act on behalf of the syndicate and includes provisions dealing with the underwriting compensation (takedown and concession) The legal opinion is a document prepared by the bond counsel, and the appointment of the bond counsel is the responsibility of the issuer.

Which of the following have authority to enforce MSRB rules? I. FDIC II. FINRA III. Comptroller of the Currency IV. Federal Reserve Board A. I and II B. I,II, IV C. III and IV D. I,II, III and IV

D. The comptroller of the currency, the FRB, and the FDIC regulate banks, FINRA enforces MSRB rules for broker/dealers that trade municipals. T/he MSRB has no enforcement authority.

Which of the following statements about the good faith deposit submitted by interested bidders are TRUE? I. It is usually 1 or 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 A. I and III B. I and IV C. II and III D. II and IV

A. A good faith deposit is required when the syndicate places a bid on a competitive offering. It is generally 1-2% of the par value of the bonds offered for sale. If the bid is unsuccessful, the deposit is returned by the issuer to the syndicate manager.

New issue of municipal securities are available in I. bearer form II. book entry form III. registered form IV. registered as to the principal only A. II and III B. II, III, and IV C. III and IV D. I, II, III and IV

A. II and III

The interest from which of the following bonds is exempt from federal income tax I. State of California II city of Anchorage III. Treasury Bonds IV. GNMA A. I and II B. I, II and IV C. III and IV D. I, II, III, and IV

A. Municipal bonds are exempt from federal income tax. Direct federal debt, treasury bonds, is subject to federal income tax but is exempt from state tax. GNMA bonds are subject to federal, state, and local taxes.

A couples home has an assessed valuation of $40,000 and a market value of $100,000. What will the tax be if a rate of 5 mills is used? A. $200 B. $500 C. $2000 D. $5000

A. 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 (or mil) as a base unit. One mill= $1 of tax per year for each $1000 of assessed value. Because there are 40 thousands, 40 x $5=$200 in annual tax. A short cut method: take the assessed value, remove the last three 0s and multiply by the number of mills of tax( $40x5mills=$200)n

The bond buyer revenue bond index I. includes 30year bond II. includes 20 bonds III. is compiled weekly A. I and II B. I and III C. II and III D. I, II, and III

B. I and III

An issuer's proportionate share of the debt of the other local governmental units in the area in which the issuer is located is defined as A. net direct debt B. overlapping debt C. bonded debt D. reversionary working interest

B. Overlapping, or coterminous, debt is an issuers proportionate share of the debt.

New housing Authority (NHA) bonds are a relatively safe investment because A. rental income provides a hedge against inflation B. the US government guarantees a contribution to secure the bonds C. they are backed by the full faith and credit of the issuing municipalities D. banks buy these bonds

B. The US government a contribution

Which of the following projects is most likely to be financed by a general obligation rather than a revenue bond? A. Municipal hospital B. Expansion of an airport C. New high school D. Public golf course

C. Hospitals, airports, and golf courses all generate revenue and can be financed with revenue bond issues. Schools are financed through GO bond sales.

All of the following characteristics regarding industrial development bonds are true EXCEPT A. the bonds are issued by municipalities or other government units B. the funds are used to construct a facility for a private corporation C. these bonds are normally backed by the full faith and credit of the municipality D. funds from the lease are used to pay the principal and interest on the bonds

C. IDBs are issued by a municipality, and the proceeds are used to construct facilities or purchase equipment for a private corporation. The corporation leases its equipment; funds from the lease are used to repay investors. In addition to a first mortgage on the property, IDBs are backed by the full faith and credit of the corporation.

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

C. The MSRB does not regulate issuers. Rather it regulates the underwriting of municipal securities and the subsequent secondary market trading. Disclosures requirements for issuers are mandated by the SEC.

The document that establishes the municipal syndicate as either Eastern or Western and establishes the terms for operation of the syndicate is known as A. the underwriting agreement B. the trust indenture C. the agreement among underwriters D. the bond resolution

C. The agreement among underwriters(the syndicate agreement) spells out the rights and obligations of each syndicate member. It also details how the responsibility for unsold bonds will be handled. In a Western account, liability is divided, which means each syndicate member assumes is responsible for only its participation. In an Eastern account, each syndicate member assumes pro rata responsibility for unsold bonds.

The call premium on a municipal bond trading above par is best described as the difference between A. the market price and par B. the market price and the call price C. par and the call price D. the amortized premium and the annual interest

C. The call premium represents the difference between the call price and par

All of the following statements regarding a municipality's debt limit are true EXCEPT A. the purpose of debt restrictions is to protect taxpayers from excessive taxes B. revenue bonds are not affected by statutory limits C. the debt limit is the max amount a municipality can borrow in any one year D. unlimited GO bonds may be issued when a community's taxing power is not restricted by statutory provisions

C. The debt limit is the max amount a municipality can borrow.

Nonmembers of a syndicate buy the bonds at a discount called A. takedown B. a net designated price C. a concession D. the basis price

C. a concession