UNIT 3 TEST - MUNICIPAL SECURITIES

3. A couple's 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. $2,000 D. $5,000

A. $200

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

A. & C. It is usually 1-2% of the total par value of the bonds offered and If the bid is unsuccessful, it is returned to the underwriting syndicate.

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

A. II and III - Book-entry form and Registered Form

30. Which of the following governmental bodies receive the least amount of their revenues from property taxes? A. State governments B. County governments C. Municipalities D. School districts

A. State governments

29. In the context of municipal bond underwritings, what distinguishes the true interest cost from the net interest cost? A. TIC reflects the time value of money. B. TIC reflects the credit risk C. TIC is the method required by the IRS. D. TIC produces a lower cost of borrowing for the issuer.

A. TIC reflects the time of value of money.

22. In a municipal underwriting, total takedown can be described as A. additional takedown + concession B. underwriting fee + additional takedown C. underwriting fee + manager's fee D. concession + manager's fee

A. additional takedown + concession

31. TANs, RANs, and BANs are issued by municipalities seeking A. short-term financing B. special tax assessments for GO bonds C. bond insurance D. financing for low-cost housing

A. short-term financing

7. Which of the following have authority to enforce MSRB rules? A. FDIC B. FINRA C. Comptroller of the Currency D. Federal Reserve Board

All the above.

33. A bank doing which of the following activities must register as a municipal securities dealer? I. Underwriting municipal securities II. Buying or selling municipal securities for customers III. Providing advisory services to a municipal issuer IV. Providing investment research regarding municipal securities to public investors

All the above. I, II, III, and IV.

13. Which of the following would be found in the agreement among underwriters for a municipal bond offering? A. Legal Opinion B. Amount of the concession C. Appointment of the bond counsel D. Establishment of the takedown

B & D. Amount of the concession & Establishment of the takedown.

40. A bond that is a general obligation, is secured by ad valorem taxes, and has specific pledged revenues underlying payment of principal interest is known as A. a moral obligation bond B. a double-barreled bond C. a dual-backing bond D. a special assessment bond

B. A double-barreled bond

20. The Bond Buyer Revenue Bond Index I. includes 30-year bonds 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

36. The interest from which of the following bonds would be included in the alternative minimum tax calculation? A. General obligation bonds B. Industrial development revenue bonds C. TANs D. Special assessment bonds

B. Industrial development revenue bonds

18. An issuer's proportionate share of the debt of 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 debt

14. New Housing Authority (NHA) bonds are a relatively safe investment because A. rental income provides a hedge against inflation B. the U.S. 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 U.S. government guarantees a contribution to secure the bonds

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

C. A concession

28. All of the following statements regarding municipal bond official statements are true EXCEPT A. all purchasers of a new municipal bond issue must receive a final official statement B. a customer must receive an official statement no later than the settlement date C. an official statement must be delivered only upon customer request D. the MSRB does not require the preparation of a final official statement for new municipal bond issues.

C. An official statement must be delivered only upon customer request

24. Which of the following statements regarding callable municipal bonds is TRUE? A. Noncallable bonds usually yield more than callable bonds B. Bonds are typically called when interest rates are rising C. Bond call premiums generally compensate the bondholder for interest payments lost if the bond is called. D. As interest rates rise, callable bonds trading at a premium will generally rise in value.

C. Bond call premiums generally compensate the bondholder for interest payments lost if the bond is called.

12. If IDB bonds are called b/c 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. Catastrophe

23. Which of the following is a double-barreled bond? A. New Housing Authority bond B. Project note C. Hospital bond backed by revenues and taxes D. GO bond to construct a new grade school

C. Hospital bond backed by revenues and taxes

25. Seventy-five basis points is equal to I. 7.5% II. .75% III. $7.50 IV. $75.00 A. I and III B. I and IV C. II and III D. II and IV

C. II and III - .75% and $7.50

8. Municipal broker's brokers deal with all of the following EXCEPT A. Bank dealers B. Municipal Dealers C. Individuals D. Institutions

C. Individuals

6. 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. Information to be provided by municipal issuers

9. 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. New High School

5. 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. Notice of Sale

1. 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. Par and the Call Price

32. A municipal securities representative intends to give $50 crystal vases to 10 of his favorite clients. According to MSRB rules, this is A. not permitted because the representative is not allowed to give gifts to customers B. Not permitted because the aggregate amount exceeds the permissible annual limit C. permitted D. only permitted with written permission from the MSRB.

C. Permitted

15. Which of the following types of municipal bond issues are associated with a flow of funds? A. TANs B. General Obligation Bonds C. Revenue Bonds D. All the above

C. Revenue Bonds

4. 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

17. 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 limitations C. the debt limit is the maximum 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 maximum amount a municipality can borrow in any one year.

26. An unqualified legal opinion means that A. the issue is legal, but certain contingencies may limit the flow of funds in the future. B. the interest is not exempt from state or local taxes. C. the bond counsel has rendered an opinion without any qualifying limitations. D. the underwriter has failed to disclose sufficient information to qualify the issue.

C. the bond counsel has rendered an opinion without any qualifying limitations.

10. All of the following characteristics regarding industrial development bonds are true EXCEPT A. the bonds are issued by municipalities or other governmental 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. these bonds are normally backed by the full faith and credit of the municipality.

27. Which of the following should a registered representative consider before recommending a municipal security? A. Customer's state of residence B. Customer's tax status C. Municipal security's rating D. All of the above

D. All of the above.

21. Special tax bonds are A. general obligation bonds B. self-supporting bonds C. backed by property taxes D. backed by sales and/or excise taxes

D. backed by sales and/or excise taxes

34. Which of the following describes the responsibilities of a municipal finance professional (MFP)? I. An associated person of a broker/dealer engaged in municipal securities representative activities other than retail sales. II. A registered representative engaged in the retail sale of municipal securities to individual investors III. Is subject to the political contribution rules as outlined in MSRB Rule G-37 IV. Is not subject to the political contribution rules as outlined in MSRB Rule G-37

I and III. An associated person of a broker/dealer engaged in municipal securities representative activities other than retail sales. Is subject to the political contribution rules as outlined in MSRB Rule G-37.

35. 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. Marketability & Tax-exempt status.

38. Auction Rate Securities (ARS) are associated with I. U.S. government securities II. Dutch auctions III. Reset rates IV. Being noncallable

II. & III. Dutch auctions & Reset rates

39. Arrange the following bonds in order of safety, from safest to most speculative. I. AA rated unlimited tax general obligation II. PHA III. IDR IV. AAA rated revenue bond

II. PHA, IV. AAA rated revenue bond, I. AA rated unlimited tax general obligation, III. IDR

37. According to MSRB rules, which of the following activities could be engaged in by a municipal securities representative during the 90-day period following the start of his employment? I. Discussing the sale of municipal securities with individual customers II. Discussing the sale of municipal securities with institutional customers III. Discussing the sale of municipal securities with other municipal securities dealers

III. Discussing the sale of municipal securities with other municipal securities dealers.

2. The interest from which of the following bonds is exempt from federal income tax? A. State of California B. City of Anchorage C. Treasury Bonds D. GNMA

State of California and City of Anchorage.