Ch 11-12

Question 1

An engineering report and a feasibility report are necessary for a _____ bond.

Answer 1

Revenue

Question 2

According to MSRB rules, _____ rate does not affect markup.

Answer 2

Coupon

Question 3

If an investor buys and holds an original issue discount bond to maturity, it is treated as part of the ______ income and is exempt from ______ taxes.

Answer 3

Interest;

Federal

Question 4

Interest paid on a ______ assessment bond is derived from charges on the benefitted property.

Answer 4

Special

Question 5

Interest income on municipal securities is exempt from _____ taxes.

Answer 5

Federal

Question 6

Revenue Bonds:

Coverage ratio=

Answer 6

Net revenue to Debt Service

Question 7

The MSRB has no enforcement power.

Answer 7

MSRB

Question 8

Ad Valorem taxes secure a _________ bond, not a ______ bond.

Answer 8

General Obligation;

Revenue

Question 9

The MSRB does not regulate municipal securities issuers.

Answer 9

MSRB

Question 10

Special Tax Bond:
Revenue Bond
1.\_\_\_\_
2.\_\_\_\_
3.\_\_\_\_\_

Answer 10

Cigarettes
Gas
Liquor

Question 11

Equivalent Taxable Yield

Answer 11

Muni Bond Yield/100%-investor tax bracket

Question 12

The debt of other districts that the residents of a particular municipal district may be responsible for is ____ debt.

Answer 12

Overlapping

Question 13

The New York Stock Exchange is not involved with the enforcement of MSRB rules. The Securities and Exchange Commission does enforce the rules of the MSRB. The Federal Reserve Board, Comptroller of the Currency, and Federal Deposit Insurance Corporation are all involved with the enforcement of MSRB rules because they are involved in the regulation of banks. FINRA also enforces the rules of the MSRB. It is important to note that the MSRB has no enforcement power.

Answer 13

NYSE

Question 14

A bond swap is simultaneously selling one bond and purchasing another. Bond swaps may be done to change the coupon, maturity, quality or rating, and for tax purposes. Accrued interest is not a consideration.

Answer 14

Bond Swap

Question 15

Which of the following factors is not taken into consideration when determining the markup on a municipal securities transaction?
A The dollar amount of the trade
B The best judgement of the dealer
C The fact that the dealer is entitled to make a profit
D The financial condition of the customer

Answer 15

D The Financial Condition of the customer

Question 16

The IRS requires that a premium paid for a municipal bond be amortized (written-off) over the life of the bond. At maturity, the investor will have an adjusted cost (after amortization) of par ($1,000). Since this is the amount received at maturity, there is no loss for tax purposes.

Answer 16

Amortized

Question 17

A ______ fund does not pay tax on its investments. Therefore, it will not find municipal bonds as attractive an investment as it will other higher-yielding investment instruments.

Answer 17

Pension

Question 18

A member of the syndicate is entitled to the additional takedown plus the concession, which is also known as the _____ takedown. Only the syndicate manager is entitled to the management fee. A broker-dealer that is not a member of the syndicate selling part of a new issue of municipal bonds is entitled to the concession.

Answer 18

Total

Question 19

The issue requires that operation and maintenance expenses are paid first from gross revenues. Gross revenues minus operating and maintenance expenses leaves net revenues. Debt service (also called bond service) would then be the first item paid from net revenues.

Answer 19

Net Revenues

Question 20

A grant anticipation note (GAN) is normally paid from funding provided by the ______ government.

Answer 20

Federal

Question 21

The investor purchased an already outstanding municipal bond at a discount and later redeemed it for par at maturity. The profit on the transaction is taxed as _____ income. This is different from an example in which the investor purchased an original issue discount municipal bond and held it to maturity. In such an example, the profit is considered interest and is exempt from ______ income tax.

Answer 21

Ordinary;

Federal

Question 22

A _____-barreled security is a municipal security that can be paid from the revenues of a project and is also a general obligation of a municipal government.

Answer 22

Double