final exam 1

Question 1

A change in interest rates would have the greatest yield change on which of securities

Answer 1

Yields on short-term debt are more sensitive to changing interest rates than yields on long-term debt. A variable-rate demand obligation (VRDO) adjusts its rates to current market rates on a regular basis.

Question 2

technology fee for both customer sales and interdealer sales is

Answer 2

$1.00 per transaction

Question 3

What type of economic indicator is industrial production

Answer 3

Coincident

Question 4

What type of political activities are permitted/denied for an MFP

Answer 4

MSRB rules prohibit MFPs from directly soliciting contributions for political candidates. MFPs may perform volunteer work that is not directly related to campaign solicitations

Question 5

If general obligation bonds are to be analyzed, the credit analysis would be affected by which of the following factors

Answer 5

The tax collection record and the debt to real estate value ratios are two factors that would be considered when analyzing general obligation bonds. The tax collection record informs the analyst of the tax bases being used by the municipality as a comparison of prior years tax bases and against other municipalities. The debt to real estate value ratios help the analyst study the relationship of debt to real estate valuation of the municipality and the municipality’s ability to meet its debt compared with the real estate wealth of the municipality

Question 6

two components that are used for the credit analysis on revenue bonds

Answer 6

Feasibility studies

Debt Service Coverage Ratio

Question 7

Time of Formal Award
For competitive issues
For negotiated issues

Answer 7

For competitive issues, the later of the time the issuer announces the award or the time the issuer notifies the underwriter of the award
For negotiated issues, the later of the time the contract to purchase the securities from the issuer is executed or the time the issuer notifies the underwriter of its execution

Question 8

would increase most sharply in price if interest rates decline?

Answer 8

Bond prices and interest rates have an inverse relationship. As prices go up, yields go down; as prices go down, yields go up. The bond that has the greatest potential to rise in price is the long maturity, discount bond.

Question 9

An issuer of municipal securities has failed to disclose material information in its official statement.
what act applies

Answer 9

This would be a violation of the antifraud provisions of the Securities Act of 1933

Question 10

Trades in municipal securities that have a limited market are still subject to the Best Execution Rule. In order to comply with the rule, what is the BEST course of action for a dealer to take when executing a trade involving a limited market security

Answer 10

Contact the dealers with which it had previously traded this security

Question 11

Direct debt

Answer 11

is all debt issued by the municipality, both general obligation and revenue

Question 12

Net direct debt

Answer 12

Net direct debt is direct debt minus self-supporting debt (revenue issues) and notes

Question 13

Property assessment rates increasing usually denotes

Answer 13

that the municipality has not been receiving enough funds to meet its budget and needs to increase taxes to avoid running the budget at a deficit

Question 14

A syndicate manager must disclose to syndicate members certain information concerning allocation of securities Within

Answer 14

Within two business days from the date of sale

Question 15

A system repo refers to

Answer 15

A system repo refers to the FOMC trading desk’s purchase of government securities from nonbank dealers with an agreement that the dealer will repurchase them from the Fed (usually the next day). The initial and immediate effect of this is an increase in the money supply.

Question 16

The matched sale is

Answer 16

the opposite of the system repo. Usually selling with an agreemenbt to buy back later

Question 17

The matched sale is

Answer 17

the opposite of the system repo. Usually selling with an agreement to buy back later

Question 18

A city passes a law allowing it to issue a new municipal bond.
What type of bond is it and what power is used

Answer 18

general obligation bond.

statutory power.

Question 19

The tool most commonly used by the FRB to regulate the amount of money and credit in the banking system is:

Answer 19

Open market operations

Question 20

The term monetary base, when used in reference to the money supply

Answer 20

The sum of currency in circulation plus deposits held by banks and other depository institutions in their accounts at the Fed

Question 21

The Federal Reserve Board was given the authority to set margin requirements according to the provisions of the:

Answer 21

Securities Exchange Act of 1934

Question 22

A MIG rating applies to a:

Answer 22

municipal notes.

Question 23

If an OID is purchased with a call premium of 104 and then called what does the investor receive.

Answer 23

f this bond is called, the investor will receive 104% of the compound accreted value, which is equal to the original value of the bond plus the annual accretion (interest earned, but not received) to date. However, if the bond is not an OID and is called, the investor will receive 104% of par ($1,040).

Question 24

MSRB suitability G-19 does not consider what to be investment strategies

Answer 24

General comparisons between a tax-exempt bond and a taxable bond
Estimates of future retirement needs
Assessment of a customer’s investment profile
Historic differences in the return of asset classes
Effects of inflation
Basic concepts such as risk

Question 25

How are syndicate expenses are handled

Answer 25

Syndicate expenses are paid by the syndicate members in proportion to the number of bonds they take in the underwriting.

Question 26

What bonds require voter approval

Answer 26

General obligation bonds require voter approval, but revenue bonds do not.

Question 27

What is a limited tax bond

Answer 27

A GO bond A limited tax bond, also referred to as a limited tax general obligation bond, is payable from an ad valorem tax (property tax) that is limited as to rate or amount.

Question 28

When must the investor brochure be made available to a customer?

Answer 28

Upon the opening of the account and annually thereafter

Question 29

A new issue of municipal securities has just come to market via a negotiated underwriting. The spread for this issue is best defined as:

Answer 29

The difference between the price paid to the issuer and the price initially offered to the public

Question 30

The Time of First Execution for an underwriter that has submitted the required information to a securities depository concerning a new issue is:

Answer 30

No less than two business hours after all information required by NIIDS has been transmitted

Question 31

If the auction for auction rate securities fails, the current holder will:

Answer 31

If this happens, the holders will continue to hold the securities and the interest rate will be set to the maximum rate allowed in the plan documents. This rate is normally higher than the rate that would have cleared a successful auction.

Question 32

The rate that discounts all future cash payments so that the sum of their present values equals the bond proceeds is the:

Answer 32

True interest cost

Question 33

Commodity prices have been rising in the U.S. What action would the Federal Reserve likely take in response to this situation? i.e. offset inflation

Answer 33

Rising commodity prices tends to be a sign of inflation and in an attempt to control this the Federal Reserve would look to tighten the money supply. This could be accomplished by selling securities. Purchasing securities in the open market or decreasing interest rates would have the opposite effect

Question 34

Legal Opinion Costs

Answer 34

The legal opinion is an inherent part of any municipal bond transaction. The delivery of the municipal bond is not a good delivery unless it’s accompanied by a legal opinion. The legal opinion is rendered by a bond counsel that’s hired and paid by the issuer (not the syndicate manager). The opinion is either printed on the face of the certificate or separately attached to the certificate at the time of issuance

Question 35

The Bond Buyer 20-Bond Index is updated:

Answer 35

weekly