exam 6 Flashcards
A municipal bond which is issued at par is later purchased at a discount and redeemed for par at maturity. The investor’s profit on the transaction is taxed as:
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 ordinary income
Long-term debt prices are most influenced by changes
in interest rates
. The most sensitive would be long-term zero-coupon bonds
Yields on short-term debt are generally more sensitive in periods of
changing interest rates.
Term issues are referred to as
dollar bonds since they are typically quoted in dollars (percentage of par) rather than yield to maturity.
When a bond is purchased at a premium (above par value), the premium must be amortized (reduced) over its life
calculation
Premium amount divided by years to maturity and then subtracted each year
Net interest cost
bond years time interest for each maturity = total interest
take total bond years and multiply by 1000 to get bond year dollar amount
take total interest paid and divide by bond year dollar amount.
Concerning Rule G-17 and the disclosure requirements regarding an underwriter’s role and conflicts of interest
The G-17 notice concerning the disclosure requirements about an underwriter’s role and conflicts of interest is triggered only if the new issue is being sold in a negotiated underwriting.
In a period of increasing interest rates
Prices change less on short-term than long-term bonds. (
When comparing long-term bonds and short-term bonds
Liquidity
Long-term bonds generally provide greater liquidity than short-term bonds
The MSRB does not restrict MFPs from engaging in political activities to express their
personal views provided they do not solicit contributions or exceed the contribution limits. Activities such as appearing at a fundraising event, soliciting votes (not contributions), giving a speech, writing books, displaying a sign on their property, or having a bumper sticker on their car would generally be permitted activities.
Hosting a fundraising event may be considered soliciting contributions, or the expenses incurred to host the event may be considered a contribution,
An inverted yield curve exists under extreme economic conditions, when interest rates are very high based on historical standards. Interest rates will reach such a level because
the demand for money exceeds the supply of money.
Information sources for municipal bonds in the primary market include the following:
the Notice of Sale, an official statement, issuers or financial advisors, the Electronic Municipal Market Access (EMMA) system, print or electronic news services (The Wall Street Journal), and new-issue wires. An alternative trading system would provide information on secondary market trading of municipal bonds
Municipal Market Data (MMD)
offers a wide range of municipal market information, including state and sector general obligation yield curves
The number of days for calculating interest on a note is
365 day year
If the U.S. Treasury increases the offerings of short-term financing, it can be expected that:
Interest rates will be falling
