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SIE > Ch. 5 > Flashcards

Ch. 5 Flashcards

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1
Q

Municipal bond interest is exempt from ____ tax.

A

Federal

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2
Q

How does the dutch auction set the interest rate on Auction Rate securities?

A

It sets the lowest interest rate at which all the securities being offered will clear the market

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3
Q

What is a Grant Anticipation Note?

A

Municipal note issued in anticipation of receiving government funding in the form of a grant

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4
Q

T/F: Asset backed securities typically offer higher yields?

A

True, since assets backing these bonds are riskier, the offer a higher rate of return

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5
Q

What is a suitable investment for a client seeking monthly income?

A

A (Government National Mortgage Association) GNMA fund, since income is paid monthly

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6
Q

Local general obligation bonds are backed by what type of tax?

A

Property tax

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7
Q

For a treasury auction, what is the difference between a competitive bid and non-competitive bid?

A

Competitive bids indicate both quantity and price, while non-competitive bids indicate a quantity

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8
Q

Is default possible on a municipal offering?

A

Yes; only US Government considered risk-free

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9
Q

In a liquidation, place the following in priority: warrants, preferred shareholders, common shareholders

A

Preferred, common, warrants

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10
Q

Is an income bond appropriate for a client who desires income?

A

No, income bonds will only pay interest if the issuer has sufficient income

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11
Q

How is interest on corporate bonds treated for tax purposes?

A

Fully taxable at federal, state and local level

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12
Q

A bond backed by machinery or rolling stock is called an ______

A

Equipment Trust Bond

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13
Q

Though subject to federal tax, interest on Treasuries is exempt from

A

State and Local

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14
Q

What is a guranteed bond?

A

A bond that is secured by another corporations guarantee that it will pay interest and principal

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15
Q

The type of bond where bondholders have a lien on real property is called a _____

A

Mortgage bond

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16
Q

May eurodollar bonds be issued in the US?

A

No and they are not registered with the SEC

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17
Q

The maximum maturity of commercial paper is ____ days

A

270

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18
Q

T/F: The interest rate on TIPS is fixed, but the principal may be adjusted

A

True

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19
Q

What is a Bond Anticipation Note?

A

Municipal note for a capital project that will eventually be paid from proceeds of a long-term bond

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20
Q

What system is used for the issuance of Treasury securities?

A

Auction

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21
Q

What bond would be issued to build a factory for a private company?

A

Industrial Development Revenue (IDR) bond

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22
Q

How often do GNMA pass-throughs make payments?

A

Monthly

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23
Q

In a liquidation, place the following in priority: preferred shareholders, unsecured creditors, current wages

A

Current wages, unsecured creditors, preferred shareholders

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24
Q

T/F: If revenue falls short, payments on moral obligation bonds only begin with legislative approval

A

True

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25
Q

In a liquidation, place the following in priority: secured creditors, debentures, common shareholders

A

Secured creditors, debentures (unsecured creditors), common shareholders

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26
Q

Negotiable CDs (also called Jumbo CDs) have a minimum denomination of $_____

A

$100,000

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27
Q

What risk is primarily associated with Mortgage Backed Securities?

A

Prepayment risk

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28
Q

The type of bond that is backed by credit card receivables or home equity loans is called an

A

Asset-backed security

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29
Q

What are T-STRIPS?

A

Any treasury note/bond where a BD has stripped the interest and principal payments to sell separately as zero coupon bonds

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30
Q

T/F: The credit rating of an IDR is based on the credit of the municipality

A

False, it is based on the corporation

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31
Q

Money-market securities have a maturity of _____.

A

Less than 1 year

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32
Q

T/F: A T-Bill is a form of zero-coupon bond

A

True (<90 days, remember)

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33
Q

What are auction rate securities?

A

Long-term bonds (municipal or corporate) with a variable interest rate set through Dutch Auction

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34
Q

T/F: Collateral Trust Bonds are backed by the stock of the issuing corporation

A

False, stock pledged must be of ANOTHER company

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35
Q

How often do pass-through certificates make payments?

A

Monthly

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36
Q

What are some examples of tax-free money-market instruments?

A

Municipal notes and tax-exempt commercial paper

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37
Q

What is often required before a revenue bond can be issued?

A

Conducting a feasibility study

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38
Q

In a _____ sale, an issuer invites underwriters to compete against one another by submitting bids for the issue

A

Competitive sale

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39
Q

List some short-term interest rates

A

Discount rate, federal funds rate, prime rate, LIBOR

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40
Q

What bonds are dollar denominated, U.S. registered, and issued by multinational companies and foreign governments?

A

Yankee bonds

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41
Q

The minimum face value of a T-Bill, T-Note or T-Bond is $_____

A

$100

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42
Q

What is the liquidation order: IRS, unpaid workers, preferred shareholders, unsecured creditors, secured creditors, common shareholders

A

Unpaid workers, IRS, secured creditors, unsecured creditors, preferred shareholders, common shareholders

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43
Q

Revenue bonds are backed by _____ generated by _____

A

Specific revenue and generated by a project / facility

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44
Q

What is the dollar price of a T-Bond with a bid of 98-24 and par value of $100

A

98 + (24/32) = 98.75

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45
Q

T/F: Agency securities are typically AAA rated

A

True

46
Q

Are debentures considered secured or unsecured?

A

Unsecured

47
Q

What is a Tax Anticipation Note?

A

Municipal note issued in anticipation of future real estate taxes

48
Q

General obligation (GO) bonds are backed by the issuer’s ______ and their ability to levy _____

A

full faith and credit and ability to levy taxes

49
Q

May eurodollar bonds later trade in the US?

A

Yes

50
Q

How is interest on municipal bonds treated for tax purposes?

A

Federally exempt but may be subject to state and local taxes

51
Q

How often will Variable Rate Demand Obligation (VRDO)s adjust their interest rate?

A

At specified intervals such as daily, weekly or monthly

52
Q

T/F: T-bills are quoted on a dollar basis

A

False, t-bills are quoted on a discount yield basis (basically zero coupon bond)

53
Q

What are examples of marketable Treasury securities?

A

T-bills, T-notes, T-bonds, STRIPs

54
Q

What is the maturity range of a T-bond?

A

More than 10 years

55
Q

A bond backed by a charge to benefiting property owners is called as _____.

A

Special Assessment Bond

56
Q

Standard and Poor’s (4) ratings for municipal notes are: ____, _____, _____ and _____

A

SP-1+, SP-1, SP-2, SP-3

57
Q

Fixed income investors receive _____, while stockholders receive _____

A

Fixed income= interest

Stockholders= dividends

58
Q

Moody’s rates municipal notes using ____, ____, ____ and ____

A

MIG1, MIG2, MIG3, SG

59
Q

What is a specific risk that may be attributed to a GNMA fund?

A

Prepayment risk

60
Q

What are the (2) general types of Treasuries?

A

1) Marketable (negotiable) and 2) Non-marketable (non-negotiable)

61
Q

A competitive bid placed at a Treasury auction will indicate both ____ and ____

A

Quantity and price

62
Q

The following would be a quote for what security? Bid 4.26, Ask 4.22

A

T-bill

63
Q

A ______ is a revenue bond backed by one specific tax.

A

Special Tax Bond

64
Q

T/F: All municipal bonds are exempt from federal taxes

A

False, certain ones are not tax exempt at federal level

65
Q

T/F: Purchasers of new municipal bonds must receive a prospectus.

A

False, Municipal Bond investors receive an Official Statement, not a prospectus

66
Q

Identify: GO

A

General Obligation

67
Q

T/F: Marketable Treasury securities can be bought and sold between investors

A

True

68
Q

What are the (2) methods by which municipal bonds are sold in the primary market?

A

1) Negotiated sale and 2) Competitive sale

69
Q

List the government agencies that issue securities that are based on mortgages.

A

Government National Mortgage Association (GNMA); Federal National Mortgage Association (FNMA)

70
Q

Why are Cash Management Bills (CMBs) issued?

A

To finance the government on a day-to-day basis

71
Q

_____ is short-term, unsecured corporate debt which typically matures in 270 days or less

A

Commercial paper

72
Q

Each payment from the Federal Home Loan Mortgage Corporation (FHLMC) will represent both ____ and ____.

A

Interest and principal

73
Q

All winners of a Treasury auction will ultimately pay the ____ price of the ____ competitive tenders

A

lowest price of the accepted competitive tenders

74
Q

The interest rate charged on overnight loans on a bank-to-bank basis is referred to as the ____ rate

A

Fed Funds

75
Q

Will a bond’s conversion price or conversion ratio be adjusted for stock splits or stock dividends?

A

Yes, due to a bond’s non-dilutive feature

76
Q

What does ownership of a GNMA pass-through certificate represent?

A

Interest in a pool of mortgages

77
Q

By what types of taxes are general obligation bonds backed?

A

Income or sales tax and also licensing fees/fines

78
Q

What security helps to finance foreign trade?

A

Banker’s Acceptance

79
Q

What is the maturity range of a T-note?

A

2 - 10 years

80
Q

T/F: long-term CDs are considered money-market instruments

A

False because CDs have a maturity greater than 1 year

81
Q

List the types of secured corporate bonds

A

Equipment trust certificates, collateral trust bonds, and asset backed securities

82
Q

T/F: When deflation occurs, the principal value of TIPS will decrease.

A

True

83
Q

In a _____, a dealer sells bonds to another dealer and agrees to repurchase them at a specific time and price

A

Repo (repurchase agreement)

84
Q

When analyzing GO bonds, what are some important considerations?

A

Property values, per capita income and debt, current debt, unfunded pension liabilities

85
Q

T/F: An increase in unfunded pension liabilities is a negative sign of the municipalities creditworthiness.

A

True

86
Q

What type of municipal bond is subject to a debt ceiling (limit)?

A

General obligation since they are paid using tax revenue

87
Q

Describe a T-STRIP

A

A bond with greater than 1 year maturity with interest and principal payments stripped to make it a zero coupon bond

88
Q

T/F: FNMA and FHLMC securities are backed by the full faith and credit of the US Government?

A

False, only GNMA bonds are backed by the full faith and credit of the US Government

89
Q

____ is the mortgage-backed agency that is fully backed by US Government

A

GNMA- Government National Mortgage Association

90
Q

At a Treasury auction, _____ bids are awarded first.

A

Non-competitive

91
Q

What is a Revenue Anticipation Note?

A

Municipal note that will eventually be paid from future federal or state subsidies

92
Q

What are the two main types of municipal bonds?

A

General obligation and revenue bonds

93
Q

T/F: Interest paid on corporate bonds is entirely tax exempt

A

False, corporate bond interest is taxed at federal, state and local level

94
Q

Name (2) types of money market instruments

A

T-bills and commercial paper

95
Q

What price do non-competitive bidders agree to pay at the Treasury auction?

A

Lowest price of the accepted competitive bids

96
Q

What are some examples of rolling stock used to back a bond offering?

A

Airplanes, trucks and railroad cars

97
Q

Identify: BA

A

Banker’s Acceptance

98
Q

What two sources are used to pay debt service on a double-barreled bond?

A

Revenue dollars and tax dollars

99
Q

T/F: Individual investors typically place competitive bids at a Treasury auction

A

False, individual investors place a non-competitive bid for quantity, not price

100
Q

Describe an asset-backed security.

A

A security whose value and income are collateralized by a group of assets, usually bank receivables

101
Q

______ bonds would usually require voter approval

A

General obligation

102
Q

How is interest on Treasuries treated for tax purposes?

A

Exempt at state and local level but taxed at federal level

103
Q

T/F: Agency CMOs have high credit ratings

A

True, due to the collateral backing them

104
Q

In a _____ sale, an issuer selects the lead underwriter or senior manager that will sell the issue to the public

A

Negotiated sale

105
Q

In a corporation, _____ stockholders have the most junior claim to assets.

A

Common

106
Q

MIG stands for: _____

A

Moody’s Investment Grade

107
Q

TIPS stands for: ____

A

Treasury Inflation Protection Securities

108
Q

The principal value of TIPS may be adjusted based on changes to the ______

A

rate of inflation / Consumer Price Index

109
Q

T/F: Interest paid on GNMA, FNMA, and FHLMC is subject to all federal, state and local taxes.

A

True

110
Q

What are eurodollar bonds?

A

Dollar denominated bonds issued outside of the US

111
Q

The most common security that issued by government agencies is a mortgage-backed _____ certificate

A

Pass-through

SIE (20 decks)

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