Series 50 - Questions
Where can you find an additional bond covenant?
An open-end indenture for a revenue bond
What is the initial registration fee for registering as a dealer or advisor with the MSRB?
$1,000
Which of the following represent the typical minimum and maximum denomination sizes typical for municipal bonds?
$5,000 and $100,000
What factors influence NIC?
-underwriting spreads - higher spreads mean higher NICs -interest rates - higher rates mean higher NICs
What activities would constitute a bank department specifically as a bank dealer?
-underwriting, trading, or sales of municipal securities - financial advisory in connection with the issuance of municipal securities -processing/clearance of muni securities -research/investment advice -communication with public investors in muni securities -maintenance of records of muni securities
Ad valorem taxes are expressed in mills. A mill is what percentage of a dollar?
0.1%
How many times may a 529 plan-to-plan rollover be made during a twelve month period?
1
What are the 2 forms of SLGS?
1. Time deposit series 2. Demand deposit series
What are the 2 kinds of municipal fund securities?
1. local government pool 2. higher education trusts
How long after a material event does an issuer have to provide continuing disclosure?
10 business days
In order for a market participant to take advantage of the IRMA exemption, the IRMA must not have been associated with the market participant for how long?
2 years
Municipal advisors are required to keep customer records for at least how many years in an easily accessible place?
2 years in an easily accessible place, and 5 years total
Who composes the MSRB?
21 members, 11 of whom are public representatives, and 10 of whom are regulated representatives
For how long is the underwriter responsible to provide the MSRB with copies of any amendments to the OS?
25th day after underwriting
What is the maturity amount of most swaps?
3 to 10 years
When calculating accrued interest relating to a municipal bond, how many days should be used to represent one year?
360
How long does the issuer have to get the Final Official Statement to the underwriter?
7 days
How does a CD compare to a savings or checking account?
A CD (fixed period deposit) generally pays higher interest rates, but charges early withdrawal penalties
The price of a bond with a duration of 10 will roughly:
A bond with a duration of 10 would decrease in value by approximately 10% for every 1% that interest rates went up.
For a new municipal securities issue, if a final official statement is not ready at the time of initial purchase, what will occur?
A preliminary official statement will be sent to the customer
What type of bond is a trust indenture or bond indenture used for?
A revenue bond because it needs a trustee to look out for the interests of the investor. A GO bond has the full faith and credit of the taxing authority, whereas a revenue bond has no such guarantee.
What is the main difference between a treasury bond and a treasury note?
A treasury bond may have a call feature and maturities range from 10-30 years. A treasury note is non-callable and maturities range from 2-10 years.
A house in Beach City has a market value of $800,000 and an assessed value of $450,000. The ad valorem tax is 7 mills. How much tax revenue will Beach City receive from the house at the end of the year?
Ad valorem tax rates are expressed in mills, which are 0.1%, or one thousandth, of a dollar. The ad valorem tax is applies to the assessed value of a property, so $450,000 x 0.007 = $3,150 tax revenue.
Bond A and Bond B are similar bonds with the same duration. Bond A has a higher convexity than Bond B. Which is less sensitive to the losses caused by rising interest rates?
Bond A with a higher convexity will be less sensitive to the losses caused by rising interest rates but more sensitive to the gains that come with falling interest rates.
In which document does an issuer authorize the issue?
Bond resolution
In a municipal competitive bid authorization, which best represents order of documents issued?
Bond resolution, Notice of Sale, syndicate letter, bid form
Beach City is unable to pay its debts. It will pursue a ___________ bankruptcy filing.
Chapter 9
What kind of entity is most likely to issue an LTGO bond?
City government
Are commodity trading advisers required to register as municipal advisors?
Commodity trading advisors, if they are registered with the CFTC, are excluded from having to register as municipal advisors, as long as the only advice they provide is related to swaps.
What is the enforcement agency for a bank dealer that is a national bank?
Comptroller of Currency.
The risk of a thin secondary market for a bond is known as:
Credit spread risk
What are the two types of BABs?
Direct payment or tax credit, depending on how the federal subsidy is paid
How frequently must an issuer rebate arbitrage profits to the government?
Every five years
Which economic indicators is believed to give the earliest sign of the future direction of the economy?
Housing starts
How is a bond's yield to maturity expressed?
In basis points
For an investor in the 33% Federal tax bracket, what rate of interest would he need to earn on a corporate bond in order to enjoy the same tax-equivalent yield he receives on a municipal bond paying 3.75%?
In the 33% tax bracket, the investor gets to keep only 67% of the interest earned on a taxable bond. Therefore, 67% of X% would need to equal 3.75%. Dividing 3.75% by .67 equals 5.60%.
What is required before MSRB rules become effective?
Public comment period & SEC approval
The Department of Labor's unemployment report is what kind of indicator?
Lagging indicator
A syndicate member wishes to place an order for a new municipal securities issue that he will sell to his own customers. In what position will this order be placed?
Last
For how many years does the IRS require relevant records to be maintained for tax-exempt bonds?
Life of the bond plus 3 years
Does a callable bond with a make whole provision have a higher or lower interest rate than a normal callable bond?
Lower Because they guarantee that a bondholder will receive his principal paid plus the net present value of all future interest payments the investor would have received if not for the call (making them low risk)
Orders that consist of sales to a syndicate member's customers are known as:
Member takedown orders
When the Federal Reserve employs moral suasion, typically this means it is trying to influence what?
Moral suasion is when one is asked to behave in a certain way for the greater good. It was tried by abolitionists in the 1830s in an attempt to get the country to abandon slavery. President Carter used moral suasion in the 1970s when he asked Americans to turn down their thermostats and save energy. The Federal Reserve has used this tactic to get banks to help the Fed control the money supply, typically by expanding or contracting lending, The Fed has the power to make life difficult for banks so any "jawboning," as moral suasion is sometimes called, must be taken seriously by banks. However, since moral suasion is difficult to enforce and measure it is not a policy that has been used much in recent years.
What is included in net overall debt?
Net direct debt plus overlapping debt
Are there yield restrictions for investment of bond proceeds in tax-exempt debt?
No
When determining net debt to estimated real valuation and net debt to assessed valuation, is revenue bond debt considered?
No
Can you find information about statistical trends in the financial section of the CAFR?
No - that is found in the statistical section
Beach City issues private activity bonds. In order for the bonds to be considered qualified private activity bonds, what is the maximum amount of proceeds that may be spent on costs of issuance?
No more than 2% of qualified private activity bond proceeds may be spent on costs of issuance.
Which of the following is the most commonly used method for the Fed to alter interest rates?
Open market operations
Which is required by the SEC or by the MSRB to be kept for the lifetime of the firm?
Partnership articles, articles of incorporation, charters, minutes books, and stock certificate books
When the Federal Reserve buys and sells securities in the open market, who are the potential buyers and sellers?
Primary dealers are the only entities that can buy and sell directly with the Federal Reserve Bank. Their number varies, but currently consists of 18 large broker-dealers and investment banks. When the Fed sells or buys securities, this action adds or drains reserves to the banking system, which impacts the federal funds rate.
With regard to allocation priorities of municipal bonds, place the following in order from highest to lowest priority: I. Group II. Presale III. Designated IV. Member
Pro Golfers Don't Miss
Which of the following best describes the latest time that a municipal advisor's relationships with municipal clients must be put in writing?
Promptly after the relationship officially begins
When a municipal general obligation bond is backed by ad valorem taxes, what type of taxes are utilized for payment?
Property
Municipal advisors are required to register with the
SEC
What is net direct debt?
Short and long term GO debt minus cash
What is the difference between NIC and TIC?
TIC incorporates the time value of money and is equivalent to the internal rate of return of the bond issue.
What must the public vote to approve before a municipality issues a general obligation bond?
The Bond Resolution
The interest rate on a SLGS certificate or bond can never fall below
The SLGS interest rate is always one basis point below the Treasury security that has a comparable maturity, unless the Treasury rate itself equals zero, which is the floor below which the interest rate on a SLGS cannot go. In this case the Treasury rate and the SLGS rate will be equal.
Which legislation created the MSRB?
The Securities Acts Amendments of 1975
total takedown fee
The difference between the total spread and the fee the lead underwriter receives for a bond
Which entity ultimately gives approval to the bond resolution during a negotiated municipal bid process?
The governing body of the issuer
Snowy Falls has $75 million in overlapping debt, $600 million in outstanding revenue bonds, $450 million in outstanding GO bonds, and $250 million in cash and reserves. The population of Snowy Falls is 215,000. What is the town's net overall debt per capita?
The net direct debt of Snowy Falls is $450 million in outstanding GO bonds - $250 million in cash and reserves = $200 million. Its overall debt is $200 million net direct debt + $75 million overlapping debt = $275 million.
What is the difference between an advance refunding and a pre-refunding?
The pre-refunding must be at the earliest possible call date whereas an advance refunding can be at any call date (so if the earliest has a premium you can wait).
How is bond insurance quoted?
The premium for bond insurance is usually quoted in basis points, and it takes into account the total interest payments and principal payments due over the life of the bond
What is an advantage of a bank certificate of deposit (bank CD)?
They are insured by the FDIC, usually up to $250,000
What is the adjusted cost basis at maturity?
par value of the bond
In a negotiated bid, which of the following explains the issuer's duties to the bondholders?
Trust indenture
In case of default, which document outlines the covenants to be honored by the issuer?
Trust indenture
When does basis risk occur?
When the floating rate of the bond is based on a different index than the floating swap rate
CMOs were primarily created to distribute the amount of ___________________ risk to investors with various risk tolerances.
prepayment
When must issuers submit material events to the MSRB through EMMA?
Within 10 business days of the event
What is the most important measure to bond investors?
Yield to maturity
Which of the following would constitute yield burning?
a dealer marks up the price of an open market security to help a municipality meet a certain yield. This practice violates IRS rules.
Under which of the following categories would you put a fund for employee pensions?
fiduciary funds
WHo is involved in the bond purchase agreement?
issuer and underwriter
To alert creditors of a municipal bankruptcy, a notice of the bankruptcy must be published at least how often?
once a week for three weeks
What is NIC?
one method that an underwriter can use to price a bid, reflects the total cost to the issuer including all interest payments until the bond is redeemed.
Local government investment pools may invest in:
only in securities otherwise allowed to individual governments under state law
The term limited offering refers to
private placement
What is TIC?
reflects the total cost to the issuer, incorporating the time value of the money into that cost
In which section of the CAFR would you look to find information about the past ten years of financial trends for a municipality?
statistical section
In a municipal competitive bid authorization process, which document would include information regarding amount and terms of bonds as well as preliminary pricing that will be offered to investors?
syndicate letter
How do you calculate the tax-equivalent yield?
tax free yield / (1 - the investor's tax rate)
Dollar bonds are a type of
term bond
Which of the following is not a sign that a municipality has a strong executive?
the executive can be reelected once
If an investor letter "travels," that indicates which of the following?
the requirement that a new purchaser sign an investor letter, often with a resale of private placement
Market risk can be defined as:
the risk that a securities portfolio will fall in value because of a crisis in the entire securities market
What is the best way to describe how to make calculations using net pension obligations?
total pension liability - plan net position (net assets) = net pension liability
Underwriters of municipal bonds must give prospective customers a preliminary offering statement
within one business day of any customer request
