final exam 2

Question 1

What does this mean

4.50% less 3/4 for a municipal bond selling in the secondary market?

Answer 1

Quotes for serial municipal bonds are usually per $1,000 and on a yield to maturity basis. The less 3/4 represents the concession or discount offered to another dealer (3/4 point = $7.50).

Question 2

The resolution for a revenue bond would contain

Answer 2

The bond resolution or indenture contains the covenants, flow of funds provision, and provisions to provide financial reports.

Question 3

Lease rental revenue bonds

Answer 3

State and local building authorities may employ a leasing concept to acquire, construct, or rent office space for their agencies (e.g., social welfare, taxation, motor vehicles). These bonds are not treated as general obligations. State legislatures may have to appropriate funds to pay off the debt service.

Question 4

When a municipal bond is issued as an original issue discount, the upward adjustment in the purchase price is called

Answer 4

accretion

Question 5

After setting the initial reoffering yields on a new municipal offering, a syndicate was forced to change the yields due to adverse market conditions. If the syndicate now wants to publish an advertisement for the new offering that includes yield information, which of the following statements is TRUE

Answer 5

If a syndicate publishes an advertisement regarding a new issue of municipal securities, it may show the initial reoffering prices or yields for the securities, even if the price or yield for a maturity or maturities may have changed, provided that the advertisement contains the date of sale of the securities by the issuer to the syndicate. However, in such a case, the advertisement must also indicate that the securities shown as available from the syndicate may no longer be available from the syndicate at the time of publication or may be available from the syndicate at a price or yield different from that shown in the advertisement

Question 6

a mil

Answer 6

.001 or 1 dollar per one thousand

Question 7

A special assessment bond

Answer 7

The interest paid by the issuer to holders of special assessment bonds is derived from charges made to the users of the benefitted property. These bonds are issued to finance facilities used for essential public services such as water and sewer systems, sidewalks, and streets.

Question 8

The ratio of the amount of net overall debt

Answer 8

both direct and overlapping) to assessed value is useful in analyzing the credit risk of an issuer of general obligation (not revenue) bonds. In order for a municipal revenue bond issuer to raise funds for a project, it will conduct a feasibility and engineering study.

Question 9

Municipal securities Dealer A quotes a price for a block of bonds to Dealer B for one hour with a five-minute recall. This means:

Answer 9

Dealer A may recall Dealer B within the one-hour period and demand a decision of Dealer B in five minutes

Question 10

RTRS with a Special Condition Indicator
N
A
P

Answer 10

N - A customer trade that does not include a markup, markdown, or commission
A is the Indicator if an alternative trading system is used.
P is the Indicator if it is a weighted average price trade.

Question 11

analyzing an issuer of general obligation bonds,

Answer 11

The credit analysis of a general obligation bond is based upon the issuer’s ability to levy and collect taxes sufficient to cover the debt service of the issue. The main considerations are as follows:
Demographics, such as the diversification of economic activity
Factors affecting the issuer’s ability to pay, such as the budgetary pictures and legislative climate
Any pending litigation against the issuer

Question 12

what type of bond is a special tax bond GO or Revenue

Answer 12

Revenue

Question 13

Credit risk

Answer 13

Credit risk is the risk that the investor will not receive interest and/or principal when it is due.

Question 14

Capital Risk

Answer 14

Capital risk is the risk that the investor will lose his investment.

Question 15

inflationary risk

Answer 15

All fixed-income securities expose an investor to inflationary risk (purchasing-power risk

Question 16

serial bond issue over time principal and interest payments ?

Answer 16

When an issuer sells a serial bond issue, a certain amount of bonds will usually mature each year. Once a bond matures, interest payments stop on that maturity. Thus, a serial bond issue helps an issuer spread out the debt service to suit the issuer’s budget. As each year passes, more bonds mature; thus, principal payments increase. Since bonds are maturing each year, less interest would be paid on the entire issue from year to year. Therefore, interest payments would decrease over the life of the entire issue.

Question 17

When determining net interest cost (NIC), what is needed

Answer 17

coupon rates, and dollar prices, the dated date and maturity dates are needed. Underwriting spreads and yields to maturity have no bearing on the NIC calculation.

Question 18

529 Plan Confirmation

Answer 18

The confirmation includes the customer’s total purchase price (if securities were purchased), the total sale price (if securities were sold), as well as the name used by the issuer to identify the securities from other municipal fund securities that it offers.

Question 19

Premium bonds callable at par will be priced on a

Answer 19

yield to call basis.

Question 20

Premium bonds callable at a premium

Answer 20

the call is at a premium the bond might be priced to the call or to maturity, depending on which is smaller.

Question 21

Discount bonds are always priced

Answer 21

on a yield to maturity basis

Question 22

Municipalities will use a certificate of participation (COP) to provide

Answer 22

financing for a project and voter approval is not required
A COP represents an investor’s interest in an equipment sales contract. The city or state (issuer) must appropriate funds annually to meet the debt service.

Question 23

What is the limit on MFP political contributions per election.

Answer 23

The $250 limitation is per candidate, per election. Primary contests are considered separate from the general election. MFPs are not permitted to funnel money through third parties

Question 24

According to MSRB Rule G-11, “management fee” indicates:

Answer 24

Any amount to be realized by a syndicate manager, and not shared with the other members of the syndicate

Question 25

Which bond has the longest duration

Answer 25

zero coupon

Question 26

legal opinion?

Answer 26

The legal opinion discusses only that it is a valid issue and that the interest is exempt from federal tax. It does not discuss underwriters’ compensation

Question 27

market letter

Answer 27

market letters qualify as advertisement pre approval is required.

Question 28

market letter

Answer 28

market letters qualify as advertisement pre approval is required.

Question 29

A type of revenue bond that represents an investor’s interest in a stream of lease payments from a specific project is a

Answer 29

A certificate of participation provides an investor with a pro rata share of a stream of lease payments from a specific project

Question 30

A double-barreled bond is

Answer 30

backed by two sources of revenue

Question 31

industrial development revenue bond

Answer 31

an industrial development revenue bond is issued by a municipality and secured by a lease agreement with a corporation.