Debt
A 7% general obligation bond matures in 1 year. A municipal dealer quoting the bond has just changed his quote from a 7.30 basis to a 7.35 basis. The approximate dollar change in price per $1,000 bond is: A $.50 B $5.00 C $50.00 D $500.00
A: 0.50 100 basis points equals 1 point on a bond = 1% of $1,000 par = $10.00 in interest per year. Since this bond has only 1 year to maturity, a 100 basis point change in quote (1 point) will equal a $10.00 change in price. This quote is being changed by 5 basis points (from 7.30 basis to 7.35 basis), so the approximate price change on this 1 year bond 1/20th (5/100) of $10 is $.50.
Which of the following municipal issues is a short term note that is retired by a later permanent bond sale? A BAN B RAN C TAN D TRAN
A: BAN Municipalities issue BANs (Bond Anticipation Notes) to "pull forward" funds that will be collected from a later permanent bond sale. 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. Municipalities issue TANs (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.
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.
All of the following statements are true regarding Eurodollar bonds EXCEPT Eurodollar: A bond payments are subject to U.S. withholding taxes B bonds are issued outside the United States C bonds are issued in bearer form D bonds pay interest and repay principal in U.S. Dollars
A: Bond payments are subject to U.S. withholding taxes Eurodollar bond issues are issued in bearer form and are sold overseas (in Europe), but pay in U.S. Dollars. They are not issued in the U.S. and are not subject to U.S. withholding taxes.
All of the following are characteristics of municipal secondary market joint accounts EXCEPT: A Good Faith Deposit B Order Period C Concession and Takedown D Account Agreement
A: Good faith deposit Municipal secondary market joint accounts are formed by two or more municipal dealers to distribute a large block of bonds in the secondary market. One of the participants acts as a manager. Municipal joint accounts are established under a written agreement between the account members; the agreement will specify that the manager has the right to establish concessions and takedowns; and can set an order period, similar to that used in primary market underwritings. During the order period, orders are accumulated and then tallied up at the period's end. The manager then fills the accumulated orders, usually on a "discretionary basis." If the issue is not sold out with these orders, the manager then accepts orders on a priority basis. There is no "good faith deposit" for secondary market joint accounts. Good faith deposits are required in primary market underwritings, since the issuer will not accept a bid without one.
Regarding the Student Loan Marketing Association (Sallie Mae) which of the following statements are TRUE? I Sallie Mae is a privatized agency II Sallie Mae is wholly owned by the U.S. Government III Sallie Mae stock is listed and trades IV Sallie Mae stock does not trade A I and III B I and IV C II and III D II and IV
A: I and III "Sallie Mae" is the Student Loan Marketing Association. Sallie Mae is an agency that is "privatized." Sallie Mae stock is listed and trades on NASDAQ.
Homeowners will prepay mortgages: I when interest rates fall II when interest rates rise III so they can refinance at lower rates IV so they can refinance at higher rates A I and III B I and IV C II and III D II and IV
A: I and III Homeowners will prepay mortgages when interest rates fall, so they can refinance at more attractive lower current rates. They tend not to prepay mortgages when interest rates rise, since there is no benefit to a refinancing.
Which of the following statements are TRUE regarding overnight repurchase agreements? I A dealer who needs cash will "sell" some of its inventory overnight to another dealer II A dealer who needs cash will "buy" inventory overnight from another dealer III The investment has interest rate risk IV The investment has no interest rate risk A I and III B I and IV C II and III D II and IV
A: I and III Overnight repurchase agreements are typically effected between government securities dealers. A dealer who needs cash will "sell" some of its inventory overnight to another dealer, with an agreement to buy the position back the next day. Repos do have interest rate risk, relating to the underlying securities. If interest rates rise, the underlying securities can decline in value. Since the maturity of the underlying securities can be of any length, long maturity values may decline more than the accrued interest to be earned on the agreement. When the borrower of the funds buys back the securities the next day at the pre-agreed price, it buys back securities at more than they are worth!
Which statements are TRUE about TIPS? I The coupon rate is less than the rate on an equivalent maturity Treasury Bond II The coupon rate is more than the rate on an equivalent maturity Treasury Bond III The coupon rate is a market approximation of the real interest rate IV The coupon rate is a market approximation of the discount rate A I and III B I and IV C II and III D II and IV
A: I and III The interest rate placed on a TIPS (Treasury Inflation Protection Security) is less than the rate on an equivalent maturity Treasury Bond. For example, a 30 year Treasury Bond might have a coupon rate of 4%; but a 30 year TIPS has a coupon rate of 2.75%. The "difference" between the two is the current market expectation for the inflation rate (1.25% in this example). The coupon rate on the TIPS approximates the "real interest rate" - the rate earned after factoring out inflation. If 30 year T-Bonds have a nominal yield of 4%; and the inflation rate is expected to be 1.25%; then the "real" interest rate is 2.75%. The reason why the TIPS sells at a lower coupon rate is that, every year, the principal amount is adjusted upwards by that year's inflation rate. So there are really 2 components of return on a TIPS - the lower coupon rate plus the principal adjustment equal to that year's inflation rate.
Interest income received from a GNMA Pass-Through Certificate is: A subject to both federal and state income tax B exempt from both federal and state income tax C subject to federal income tax and exempt from state and local tax D exempt from federal income tax and subject to state and local tax
A: Subject to both federal and state income tax Unlike Treasury obligations and regular agency debt, where interest income is subject to federal income tax, but is exempt from state and local tax, interest income from mortgage backed securities is subject to both federal and state income tax. This is the law because the interest payments made on the underlying mortgages are deductible to the homeowner making the mortgage payments at both the federal and state level, therefore the recipient of these payments should be taxed at both the federal and state level.
If interest rates are rising rapidly, which U.S. Government debt prices would be LEAST volatile? A Treasury Bills B Treasury Notes C Treasury Bonds D Treasury STRIPS
A: Treasury Bills The shorter the maturity, the lower the price volatility of a negotiable debt instrument. Of the choices listed, Treasury Bills have the shortest maturity. Treasury STRIPS are a zero-coupon T-Bond issue with a long maturity, and would be the most volatile of all the choices offered.
A customer purchases a convertible bond at 90, convertible into the common stock at $40. The common stock is currently trading at $36. The company declares a 25% stock dividend. The bond trust indenture includes an anti-dilution clause. After the ex date for the stock dividend, the conversion price for this bond issue will be: A $30 B $32 C $36 D $40
B: $32 If the company issues additional shares, each of the existing shares is worth "less" since the company's earnings are spread over a greater number of shares. Thus, the market price will adjust downward to reflect this. If a company issues 25% more shares (after the dividend, there will be 1.25 times the old number of shares), then the earnings and consequently the share price will drop by a factor of 1/1.25. The bondholder bought the issue based on a conversion price of $40. The market price of the stock is being diluted by the additional shares, reducing or eliminating the value of the bondholder's conversion feature. To protect the bondholder from this occurrence, trust indentures include an anti-dilution covenant. The conversion price of the stock is adjusted downwards by the same factor, so that the convertible bondholder experiences no loss from the issuance of the new shares. $40/1.25= $32 per share
A customer has a discretionary account at a brokerage firm. The customer calls the registered representative handling the account and states "Buy $50,000 of lower medium investment grade corporate bonds" with at least 5 years to maturity and a minimum 8% yield. To comply with the customer's instructions, the registered representative must choose bonds that are rated, at a minimum: A Aaa B A C Baa D Ba
B: A The investment grades and highest speculative grade published by Moody's are: Aaa Highest Investment Grade Aa Upper Medium Investment Grade A Lower Medium Investment Grade Baa Lowest Investment Grade Ba Highest Speculative Grade To comply with the customer's requirement that the bonds be lower medium investment grade, an A rated bond is appropriate.
Under the flow of funds in a revenue bond trust indenture, the first use of NET revenues is to pay: A operation and maintenance B debt service C debt service reserve D reserve maintenance fund
B: Debt service This is tricky! Net revenues are defined as gross revenues less operation and maintenance costs. Once operation and maintenance are covered, the net revenues that remain are first used to pay debt service.
A municipality is at its debt limit and wishes to sell additional bonds. Voter approval is required for the municipality to sell: I Limited tax general obligation bonds II Unlimited tax general obligation bonds III Self-supporting revenue bonds IV Self-supporting industrial revenue bonds A I only B I and II only C III and IV only D I, II, III, IV
B: I and II only Voter approval is needed for a municipality to sell general obligation bonds (non-self supporting debt) in an amount that exceeds the municipality's constitutional limit. It makes no difference if the general obligation bonds are backed by limited or unlimited taxing power. Revenue bonds and industrial revenue bonds are not subject to debt limits because they are self-supporting and pay their own way from collected revenues. They are not paid from tax collections.
Which of the following are TRUE statements regarding Treasury Bills? I T-Bills are registered in the owner's name in book entry form II T-Bills are issued in bearer form in the United States III T-Bills are callable at any time IV T-Bills are issued at a discount A I and III B I and IV C II and III D II and IV
B: I and IV T-Bills are registered in the owner's name in book entry form only; no bearer securities can currently be issued in the U.S. to individual residents. T-Bills are original issue discount obligations and are not callable, since they are short term.
If a bond is trading at a discount, price volatility is greatest for a bond having: I low interest rates II high interest rates III short term maturities IV long term maturities A I and III B I and IV C II and III D II and IV
B: I and IV The basic truths about bond price volatility are: The lower the coupon rate (the same as saying the lower the price of the bond), the greater the bond price volatility; The longer the maturity, the greater the bond price volatility. Thus, the most volatile bonds are deep discount, long maturity bonds.
Which of the following statements about Treasury STRIPS are TRUE? I Treasury STRIPS are susceptible to purchasing power risk II Treasury STRIPS are not susceptible to purchasing power risk III Treasury STRIPS are subject to reinvestment risk IV Treasury STRIPS are not subject to reinvestment risk A I and III B I and IV C II and III D II and IV
B: I and IV Treasury STRIPS are government bonds that are "stripped" of coupons. They do not provide current income. This is a long term zero coupon obligation with a "locked in" rate of return over the life of the bond (thus, it is not subject to reinvestment risk). However, it is subject to purchasing power risk - if market interest rates rise, its value declines (sharply, as a long term zero coupon obligation).
Which of the following statements are TRUE about CMOs in a period of falling interest rates? I CMO prices rise slower than similar maturity regular bond prices II CMO prices rise faster than similar maturity regular bond prices III The expected maturity of the CMO will shorten due to a slower prepayment rate than expected IV The expected maturity of the CMO will shorten due to a faster prepayment rate than expected A I and III B I and IV C II and III D II and IV
B: I and IV When interest rates fall, mortgage backed pass through certificates rise in price - at a slower rate than for a regular bond. This is true because when the certificate was purchased, assume that the expected life of the underlying 15 year pool (for example) was 12 years. Thus, the certificate was priced as a 12 year maturity. If interest rates fall, then the expected maturity will shorten, due to a higher prepayment rate than expected. If the maturity shortens, then for a given fall in interest rates, the price will rise slower.
A municipality has a G.O. bond debt limit of $500 million. It has $300 million of G.O. debt outstanding. It now wishes to issue another $100 million of G.O. bonds. The new debt issue is known as a(n): A Junior lien debt B Parity bond C Par bond D Senior lien debt
B: Parity bond A municipal "parity" bond is one that has an equal claim on tax collections or revenues as other obligations of that issuer. For example, 2 issues of revenue bonds of the same issuer are on parity with each other if the same pledged revenues are the security for each bond issue. In contrast, a double barreled revenue bond is a revenue bond that is additionally backed by that municipality's ad valorem taxing power if there is a revenue shortfall. Thus, aside from the revenue pledge, these are additionally backed by a general obligation pledge of "full faith, credit and taxing power." Senior lien and junior lien are terms that apply to corporate bonds and not to municipal bonds. When a corporation issues debentures (backed by full faith and credit), any subsequent issues are "junior" to the original debt (which is now termed "senior" debt). Senior debt has first claim on interest payments over the junior debt; and senior debt would be first to be repaid in a liquidation over junior debt.
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 (Tax appreciation notes) 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.
A 5 year 3 1/2% Treasury Note is quoted at 101-4 - 101-8. The note pays interest on Jan 1st and Jul 1st. All of the following statements are true regarding this trade of T-Notes EXCEPT: A interest accrues on an actual day month; actual day year basis B the yield to maturity will be higher than the current yield C the trade will settle in Fed Funds D the trade will settle next business day if performed "regular way"
B: The yield to maturity will be higher than the current yield Because these T-Notes are trading at a premium, the yield to maturity will be lower than the current yield. The current yield does not factor in the loss of the premium over the life of the bond, whereas yield to maturity does. Government bond trades settle next business day; accrued interest is computed on an actual month/actual year basis; and trades settle through the Federal Reserve system in "Fed Funds."
All of the following statements are true regarding Eurodollar bonds EXCEPT: A Eurodollar bonds are issued by both domestic and foreign corporations B payment of interest and principal is made in either U.S. dollars or a designated foreign currency C trading does not take place in the United States D the securities are not registered with the SEC
B: payment of interest and principal is made in either U.S. dollars or a designated foreign currency Eurodollar bonds are denominated only in dollars and are payable only in dollars. These bonds are issued by both domestic and foreign corporations outside of the U.S. markets to take advantage of lower interest rates. Since trading does not take place in the U.S., these securities are not registered with the SEC.
A 30 year $1,000 par 4 3/4% Treasury Bond is quoted at 95-11 - 95-15. The note pays interest on Jan 1st and Jul 1st. A customer buys 1 bond at the ask price. What is the current yield, disregarding commissions? A 4.68% B 4.75% C 4.98% D 5.12%
C: 4.98% The bond is purchased at 95 and 15/32nds = 95.46875% of $1,000 = $954.6875. The formula for current yield is: $47.50/$954.6875= 4.98%
The LEAST liquid money market instrument is: A Treasury Bills B Commercial paper C Banker's Acceptances D Repurchase Agreements
C: Banker's acceptances Banker's Acceptances are a money market instrument used to finance imports and exports with Third World countries. The bank agrees to pay a fixed amount at a date in the future, which is the expected date of receipt of the goods. The exporter then has assurance that he will be paid and will ship the goods. BAs trade at a discount to their face amount until maturity, but the trading market is rather thin since the use of BAs is declining as international payment systems are modernized.
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.
The interest expense on monies used to buy bank qualified municipal bonds is: I 80% deductible for individuals II 0% deductible for individuals III 80% deductible for banks IV 0% deductible for banks A I and III B I and IV C II and III D II and IV
C: II and III A bank is allowed to deduct 80% of any interest expense that it must pay on monies borrowed to buy bank qualified municipal bonds. (The bank "borrows" the monies from its depositors and pays them interest on their deposits). If an individual were to buy municipal bonds, the interest expense on monies used to buy the bonds is non-deductible.
A corporation has issued 8% AA rated sinking fund debentures at par. Three years later, similar issues are being offered in the primary market at 7%. Which are TRUE statements about the outstanding 8% issue? I The current yield will be higher than the nominal yield II The current yield will be lower than the nominal yield III The dollar price of the bond will be at a premium to par IV The dollar price of the bond will be at a discount to par A I and III B I and IV C II and III D II and IV
C: II and III The bond was issued with a coupon of 8%. Currently, yield for a similar issue is 7%. Therefore, interest rates have fallen subsequent to the issuance of the bond; or the credit quality of the bond has improved. When interest rates fall, yields on bonds already trading must also fall. What causes this is a rise in the dollar price of the issue - the bond now trades at a premium.
Which of the following statements are TRUE regarding the trading of government and agency bonds? I The securities are quoted by dealers in 1/8ths II The securities are quoted by dealers in 1/32nds III The trading market for governments and agencies is active IV The trading market for governments and agencies is inactive A I and III B I and IV C II and III D II and IV
C: II and III The government obligation trading market is the deepest and most active market in the world. Due to the great trading activity, dealers trade the securities at very narrow spreads, quoting them in 32nds (as opposed to corporate securities that are quoted in 1/8ths).
All of the following statements are true about Treasury Receipts EXCEPT the: A investor "locks in" a rate of return that is free from reinvestment risk if the Receipt is held to maturity B underlying bonds are held by a trustee for the beneficial owners C interest income on the Receipts is exempt from Federal income tax if the Receipt is held to maturity D Receipts are issued by broker-dealers, who maintain a secondary market in these securities
C: Interest income on the receipts is exempt from federal income tax if the receipt is held to maturity Treasury Receipts represent an undivided interest in a portfolio of U.S. Government securities held by a trustee. The portfolio is assembled by a broker-dealer, who sells "receipts" representing ownership of the interest. Each receipt is, essentially, a zero-coupon obligation, that is purchased at a discount, and which is redeemable at par at a pre-set date. Thus, there is no reinvestment risk, since semi-annual interest payments are not received. The implicit rate of return is locked-in when the security is purchased, and the customer will earn that rate of return if the security is held to maturity. Like all original issue discount obligations, the Internal Revenue Code requires that the discount be accreted over the life of the receipt. The annual accretion is taxable, since the underlying securities are U.S. Governments. At maturity, the receipt will have an adjusted cost basis of par, and will be redeemed at par, for no capital gain or loss. Broker-dealers that issue the Receipts make a market in the units. If a customer wishes to sell prior to maturity, the broker will buy back the Receipt at its current market value (which will vary, depending on interest rate movements). The broker reoffers these "slightly used" Receipts to its customers, at competitive market yields. There are no new T-Receipt issues coming to market. Once the Treasury started issuing STRIPS in 1986, there was no need for the "middleman" anymore. However, T-Receipts still trade until they all mature.
Banker's Acceptances are: A money market instruments used to finance emerging growth companies B capital market instruments used to finance emerging growth companies C money market instruments used to finance emerging country imports and exports D capital market instruments used to finance emerging country imports and exports
C: Money market instruments used to finance emerging country imports and exports Bankers Acceptances are a money market instrument used to finance imports and exports with "Third World" countries. They are an exempt security under the Securities Act of 1933 and can be sold without a prospectus.
All of the following statements are true about both bonds and preferred stock EXCEPT: A Both bonds and preferred stock are "Senior" securities over common stock in a dissolution B Both bonds and preferred stock can be convertible C Payments to both bondholders and preferred stockholders are subject to approval of the Board of Directors D Both bonds and preferred stock have a stated fixed payment rate
C: Payments to both bondholders and preferred stockholders are subject to approval of the Board of Directors
Corporate bonds are usually: A serial bonds and are quoted on a percentage of par basis B serial bonds and are quoted on a yield basis C term bonds and are quoted on a percentage of par basis D term bonds and are quoted on a yield basis
C: Term bonds and are quoted on a percentage of par basis Corporate bonds are usually term bonds - all bonds of an issue having the same interest rate and maturity. Term bonds are quoted on a percentage of par basis in 1/8ths, which is the same as a "dollar" quote.
A double barreled bond is one backed by a pledged source of revenue, as well as: A the guarantee of the U.S. Government B U.S. Government Treasury Bonds held in trust C the pledge of the municipality's ad valorem taxing power D the municipality's moral obligation to pay
C: The pledge of the municipality's ad valorem taxing power A "double barreled" bond is a municipal revenue bond whose principal and interest payments are backed by a revenue pledge; however, if the revenues are insufficient to cover the debt service requirements, the municipality will use its ad valorem taxing power to meet the deficit.
The nominal interest rate on a TIPS approximates the: A discount rate B federal funds rate C real interest rate D expected interest rate
C: real interest rate The interest rate placed on a TIPS (Treasury Inflation Protection Security) is less than the rate on an equivalent maturity Treasury Bond. For example, a 30 year Treasury Bond might have a coupon rate of 4%; but a 30 year TIPS has a coupon rate of 2.75%. The "difference" between the two is the current market expectation for the inflation rate (1.25% in this example). The coupon rate on the TIPS approximates the "real interest rate" - the rate earned after factoring out inflation. If 30 year T-Bonds have a nominal yield of 4%; and the inflation rate is expected to be 1.25%; then the "real" interest rate is 2.75%. The reason why the TIPS sells at a lower coupon rate is that, every year, the principal amount is adjusted upwards by that year's inflation rate. So there are really 2 components of return on a TIPS - the lower coupon rate (the "real" interest rate) plus an adjustment equal to that year's inflation rate.
What is the benefit of a zero coupon bond? A Dividend income B Semi-annual payments C Amortization D Capital appreciation
D: Capital appreciation Zero coupon bonds do not make periodic payments. The bond is purchased at a deep discount price and builds internally until maturity, at which point the bond is redeemed at par. They are often called capital appreciation bonds because of this and they are used to accumulate capital that will be used at maturity. For example, parents of young children might buy zero coupon bonds at a deep discount and use them at maturity to pay for the kid's college expenses.
All of the following insure municipal bonds EXCEPT: A AMBAC B FGIC C MBIA D FDIC
D: FDIC FDIC - Federal Deposit Insurance Corporation - insures bank deposits for up to $250,000 per account. AMBAC (American Municipal Bond Assurance Corporation), MBIA (Municipal Bond Insurance Association) and FGIC (Financial Guaranty Insurance Corporation) all insure municipal bonds.
A customer holds a very large, diversified portfolio of high grade municipal bonds with varying maturities. This customer has minimized all of the following risks EXCEPT: A default risk B interest rate risk C marketability risk D legislative risk
D: Legislative Legislative risk for holders of municipal issues is the risk that the Federal Government will tax the interest income on the bonds. This risk cannot be diversified away. Default risk is minimized with a diversified portfolio; interest rate risk is minimized by mixing maturities. Marketability risk is also reduced by diversification, since it is unlikely that all the issues in the portfolio would become unmarketable at one time.
Under the flow of funds in a revenue bond trust indenture, net revenue is defined as gross revenue minus: A sinking fund expenses B debt service reserve expenses C debt service expenses D operation and maintenance expenses
D: Operation and maintenance expenses Net revenues are defined as gross revenues less operation and maintenance costs. Under a net revenue pledge, once operation and maintenance are covered, the net revenues that remain are first used to pay debt service.
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.
