Chapters 11&12

Question 1

Undivided Syndicate

Answer 1

Eastern Account

-Each member takes some of the unsold bonds (same percentage as the original allocation)

Question 2

Divided Syndicate

Answer 2

Western Account

-Members only responsible for their individual allocation

Question 3

Components of the spread

Answer 3

1. Manager’s fee= administration
2. Additional takedown= risk
3. Concession= selling

** Syndicate member’s compensation= additional takedown plus concession (also names total takedown)

Question 4

After issuance, where do muni bonds trade?

Answer 4

OTC market

Question 5

20 Bond Index

Answer 5

• 20 G.O. bonds with 20 year maturities

- Average rating AA or A2

Question 6

11 Bond Index

Answer 6

• Take 11 of the original 20
• Average rating of AA+ or Aa1
• Higher ratings, so lower IR

Question 7

25 Revenue Bond Index

Answer 7

• 25 Revenue bonds with 30 year maturities

- Average rating A+ or A1

Question 8

Where does enforcement come from for broker-dealers?

Answer 8

FINRA

SEC

Question 9

Where does enforcement come from for bank dealers?

Answer 9

Comptroller of the Currency
FRB
FDIC

Question 10

What requirements much be satisfied to issues GO bonds?

Answer 10

1. Voter approval, since it is uses tax dollars to repay the debts
2. Debt Ceiling Limitations

Question 11

What requirement must be satisfied to issue revenue bonds?

Answer 11

Feasibility Study

Question 12

How are municipal issues typically sold from a syndicate stand point?

Answer 12

Firm-commitment basis

Question 13

Priority of Orders

Answer 13

1. Presale Orders
2. Group Net Orders
3. Designated Orders
4. Member Orders

Syndicate manager can change priority of orders if in the best interest of syndicate

Question 14

Notice of Sale

Answer 14

• When an issuers intends to sell bonds through a competitive sale, will advertise through NoS
• includes size offering, maturity date, coupon rate, and details related to bidding process

Question 15

Legal of Opinion

Answer 15

EVERY MUNI BOND MUST BE ISSUED WITH THIS

-written by bond counsel that is hired by issuer to attest to the validity and tax exempt status of the bond issue

Question 16

Official Statement

Answer 16

The disclosure document

• contains info about issuer ad offering
• must be distributed to investors if it is produced
• has a preliminary and final version

Question 17

EMMA

Answer 17

Electronic Municipal Market Access

MSRB’s dataport where muni bond underwriters and issuers submit specific documents

Question 18

Municipal Bond Dealers and Traders

Answer 18

• Engage in position trading (a process where they commit capital)
• may also be asked to appraise or evaluate and issue

Question 19

Broker’s Broker

Answer 19

Assist another firm in buying or selling bonds in the secondary market

• Deals only with other brokerage firms and banks
• do NOT underwrite new issues
• receives commissions

Question 20

What will bonds selling at a discount be priced?

Answer 20

Priced to maturity

Question 21

What will bonds selling at a premium (and callable at par) be priced?

Answer 21

Priced to call

Question 22

What will bonds selling at a premium (and callable at a premium) be priced?

Answer 22

Priced to maturity or to call, whichever is lower

Question 23

Accrued Interest Calculation

Answer 23

Calculated from the last coupon date up to, but not including the settlement date

• T+2 for settlement
• 30 days in every month
• 360 days in the year

Question 24

The Bond Buyer

Answer 24

Online newspaper of the muni industry that contains news that is pertinent to both the muni market and the financial community

Question 25

Visible Supply

Answer 25

Gives an indication of the supply side of the market - computed on a daily basis - total dollar amount of all muni's being underwritten that are expected to reach the market over the next 30 days - included are issues that are due to mature in 13 months or more

Question 26

Bond Buyer Placement Ratio

Answer 26

- Offerings much be 1 million or more - demand side of the market - weekly basis (end of friday) - dollar amount sold compared to issued over the week

Question 27

Firm Quotes

Answer 27

Used to indicate definite prices for either a seller or a bidder

Question 28

Confirmations for muni bond must be sent to a customer when?

Answer 28

At or before the completion of the transaction

Question 29

Bond Buyer's Municipal Bond Index is based on:

Answer 29

The average prices of 40 LT muni bonds adjusted to a yield of 6%

Question 30

What party states that a muni bond may legally issue bonds?

Answer 30

The issuer's bond counsel

Question 31

A bond counsel renders an "unqualified legal opinion" if...

Answer 31

there are not limitations or pending lawsuits that hinder the issuance of bonds

Question 32

When would the delivery of a mutilated certificate be considered good delivery?

Answer 32

If the certificate is authenticated by the issuer or transfer agent

Question 33

Basis is also called

Answer 33

Yield to Maturity

Question 34

When would the federal tax exemption for interest earned on an industrial revenue bond not be available?

Answer 34

When the holder of the bond is a substantial user of the facility

Question 35

Private Activity Bond

Answer 35

- Type of muni bond in which the funds being raised will be used to benefit a private company - if person receiving interest payment is subject to AMT, interest is taxable at the federal level - least suitable to a client who is subject to AMT

Question 36

Is a moral obligation bond LT or ST

Answer 36

LT

Question 37

Accrued Interest Formula

Answer 37

(Principal X Rate X Days of interest)/360

Question 38

Tax anticipation notes are used to

Answer 38

Meet Operational Expenditures

Question 39

Bond Anticipation Notes

Answer 39

A muni borrowing for short term period to finance capital project

Question 40

Special Assessment Bond

Answer 40

Used to finance the construction of water and sewer systems, sidewalks, and streets -interest paid is derived from charges on benefited property

Question 41

Main considerations when analyzing the credit risk of an issuer of a GO bond

Answer 41

- diversification of economic activity - budgetary pictures and legislative climate - pending litigation against the issuer

Question 42

Special Tax Bond

Answer 42

Type of revenue bond usually financed by tax on certain items such as cigarettes, liquor, or gasoline

Question 43

Net Revenue Pledge Bond

Answer 43

From: Gross Revenue 1st comes: Maintenance and operation Leaving: Net Revenue From which we pay: Debt service - Lower bond rating - higher coupon

Question 44

Gross Revenue Pledge Bond

Answer 44

From: Gross Revenue 1st comes: debt service From whats left we pay: maintenance and operation - higher bond rating - lower coupn

Question 45

Overlapping debt

Answer 45

the debt of other districts that the residents of a particular muni district may be responsible for

Question 46

Double Barreled Security

Answer 46

a muni security that can be paid from the revenues of a project and is also a G. O. of a muni governement

Question 47

Reasons for a bond swap

Answer 47

to change the coupon, maturity, quality or rating, and for tax purposes

Question 48

GAN-Grant Anticipation Note is paid from

Answer 48

funding provided by the federal government

Question 49

BAN- Bond anticipation note is paid from

Answer 49

the proceeds from the issuance of LT bonds

Question 50

RAN- Revenue anticipation note

Answer 50

paid from the revenues to be received at a future date

Question 51

TAN- tax anticipation note

Answer 51

paid from future tax receipts, such as property 9ad valorem taxes)