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Series 7 > Municipal Securities > Flashcards

Municipal Securities Flashcards

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Series 7 Top-off Exam flashcards
1
Q

The bond placement ratio, as shown in the Daily Bond Buyer, is found by which of the following?

A

The dollar value of new issues sold divided by dollar value of the new issues offered.

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2
Q

Who has the final responsibility for debt service on an industrial revenue bond?

A

Corporation leasing the facility.

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3
Q

All of the following deal with the secondary market EXCEPT:

A

notice of sale.

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4
Q

A customer purchases New York State GOs at a discount in the secondary market. The bonds mature in 10 years and are callable in 5 years at par. Under MSRB rules, the customer’s confirmation will show

A

YTM.

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5
Q

The dollar price used to compute the yield to call must be recorded on the confirmation of which of the following callable municipal bonds?

A

9s 15 quoted at 7.0.

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6
Q

Under MSRB rules, if a municipal securities dealer has a financial advisory relationship with an issuer, which of the following statements is NOT true?

A

The relationship need not be disclosed in communications with the public pertaining to that issuer’s securities.

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7
Q

Which of the following are TRUE?

A

I. Direct payment BABs provide the municipal issuer with payments from the U.S. treasury.
II. Tax credit or issuer BABs provide the municipal bondholder with a federal income tax credit.

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8
Q

Which of the following is the largest component of a municipal underwriting spread?

A

Total takedown

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9
Q

New Housing Authority (NHA) bonds are a relatively safe investment because:

A

the U.S. government guarantees a contribution to secure the bonds.

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10
Q

With bonds subject to a gross revenue pledge, the first priority will be to pay:

A

bond interest and principal.

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11
Q

Scale in a municipal bond underwriting refers to

A

yields by maturity.

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12
Q

The Bond Buyer’s 30-Day Visible Supply includes

A

I. issues of bonds sold on a competitive basis.

II. issues of bonds sold on a negotiated basis.

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13
Q

A municipal issuer publishes an official notice of sale to indicate that the offering will be made:

A

on a competitive basis.

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14
Q

Which of the following statements regarding the good faith deposit submitted by interested bidders are TRUE?

A

I. It is usually 1% to 2% of the total par value of the bonds offered.
II. If the bid is unsuccessful, it is returned to the underwriting syndicate.

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15
Q

All of the following must be considered by an investment adviser representative before recommending a municipal security to a customer EXCEPT:

A

The municipality’s coverage ratio.

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16
Q

All of the following items of information must be included in a municipal securities confirmation EXCEPT:

A

an extraordinary call provision.

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17
Q

All of the following characteristics regarding industrial development bonds (IDBs) are true EXCEPT:

A

the bonds are normally backed by the full faith and credit of the municipality.

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18
Q

Which of the following are TRUE of an official statement?

A

III. It is required to be delivered to purchasers at or before settlement.
IV. It is generally used by underwriters to help sell the issue.

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19
Q

You sell a municipal bond that has been advance refunded. It will be called at 102 four years from now. On the confirmation, the yield must be stated as the yield to:

A

call.

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20
Q

Which of the following underwriting arrangements is associated with an invitation, typically found inThe Bond Buyer, directed at investment bankers and broker dealers, intended to solicit interest in underwriting a new municipal issue?

A

Competitive bid.

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21
Q

Which of the following statements regarding a municipal variable rate demand obligation are TRUE?

A

I. Interest payments are tied to the movements of another specified interest rate.
the coupon rate of the bond changes and the price remains stable.

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22
Q

Which of the following governmental bodies receive the least amount of their revenues from property taxes?

A

State governments.

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23
Q

When acting as an agent for a customer, MSRB rules require the broker to make a reasonable effort to obtain which of the following?

A

I. A fair price in relation to prevailing market conditions.

II. A reasonable price in relation to prevailing market conditions.

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24
Q

A Western account underwriting of $100 million in municipal bonds is established. A member firm agrees to underwrite 10% of the issue and sells out its allotment of $10 million. However, some of the other firms participating in the deal are unable to sell their full allocation, and $15 million of the bonds remain unsold. What is the member firm’s financial obligation?

A

0.

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25
Q

A confirmation to a customer purchasing a new issue of municipal securities must disclose all of the following EXCEPT:

A

current yield.

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26
Q

Hospital revenue bonds may be backed by:

A

II. operating revenues.

III. special taxes.

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27
Q

The TIC method of evaluating municipal bids:

A

considers the time value of cash flows.

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28
Q

All of the following might lead to an industrial development bond being called EXCEPT:

A

the municipality is approaching a statutory debt limit.

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29
Q

An investor in the 28% income tax bracket is considering purchasing either a 4% municipal bond or a 5% corporate bond. Which of the following statements regarding the two bonds’ after-tax yields is TRUE?

A

The municipal bond’s yield is higher than the corporate bond’s yield.

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30
Q

According to MSRB rules, if a customer purchases a municipal bond from your firm, the confirmation must disclose

A

II. whether your firm acted as agent or principal.

III. your firm’s address.

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31
Q

The interest from which of the following bonds might be included in the alternative minimum tax calculation?

A

Industrial development revenue bonds.

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32
Q

A legal opinion evaluates which of the following features of a municipal issue?

A

II. Legality.

III. Tax-exempt status.

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33
Q

All of the following should be considered when creating a diversified municipal bond portfolio EXCEPT:

A

denomination of the bonds included in the portfolio.

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34
Q

Badentown is planning to raise money in 3 months to build a new city hall. The mayor wishes to start ground preparation immediately. How could money be raised to fund the work?

A

Bond anticipation note.

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35
Q

Which of the following does NOT participate in the syndicate (joint account) for a municipal underwriting?

A

The issuing municipality.

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36
Q

The placement ratio in “The Bond Buyer” indicates the relationship for a particular week between the number of bonds sold and the number of bonds:

A

offered for sale in the market that week.

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37
Q

Interest on loans to purchase securities is generally a deductible item on one’s tax return unless the purchase is for

A

a municipal bond

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38
Q

For the underwriting of a municipal bond issue, competitive bids are submitted by underwriters as a:

A

firm commitment.

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39
Q

The City of Podunk has an outstanding 25-year maturity issue that is callable in 7 years. It has prerefunded the issue and established an escrow account containing the proper government securities with face amounts and maturities approximating the call provisions of the original issue. In quoting the original issue, which of the following must be used?

A

Yield-to-call.

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40
Q

Which of the following would be considered in analyzing the credit worthiness of a revenue bond issuer?

A

II. Debt service coverage.

III. Management.

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41
Q

A customer in the 28% tax bracket owns a 9% ABC Corporation 20-year bond that currently is yielding 8.7%. He is considering buying tax-exempt securities. What is the comparable yield for a municipal bond?

A

0.0626.

42
Q

For municipal bond transactions, data captured and made available to the market place is done by which of the following?

A

Real Time Transaction Reporting System (RTRS).

43
Q

In its notice of sale in the “Bond Buyer”, an issuer states that it will take into consideration the timing of interest payments when evaluating bids. The issuer will be using which of the following methods in its bid selection?

A

True interest cost.

44
Q

A municipal bond is offered at a discount. It has a 30-year maturity and is callable in 20 years at par. It is callable in 5 years at a premium and is puttable in 10 years at par. Which of the following yields would be quoted on this basis?

A

Yield to the 30-year maturity.

45
Q

An example of a taxable bond issued by a municipal government is:

A

A Build America Bond (BAB).

46
Q

Information found in the Bond Buyer would include all of the following EXCEPT

A

secondary market volume

47
Q

A municipal revenue bond has a catastrophe call feature but otherwise is not callable. Which of the following statements regarding the features of this bond that must be described on a customer’s confirmation is TRUE?

A

It need not be designated as callable.

48
Q

The trust indenture of a revenue bond includes a statement explaining rates will be maintained at a level sufficient to cover the debt service and operating expenses. This statement would be found in that part of the indenture dealing with the:

A

bond covenants.

49
Q

Which of the following best describes how a syndicate determines the amount to bid for a new municipal issue?

A

The average reoffering price minus the spread.

50
Q

Which of the following would NOT be examples of overlapping debt?

A

I. Debt to build a state office building within city limits.

II. Debt backed by two states cooperating in the construction of a bridge.

51
Q

A customer has written a letter of complaint to the dealer. On receipt of the complaint, a municipal securities dealer must first:

A

accept the complaint and record the action taken.

52
Q

Nonmembers of a syndicate who are assisting in its sale of bonds buy the bonds at a discount called:

A

a concession.

53
Q

Trade confirmations must show yield to call on which of the following bonds?

A

5-½%, 5% basis, maturing 2008.

54
Q

Which of the following would be of least concern to a registered representative recommending a municipal security to a customer?

A

Availability of the security.

55
Q

Mr. Smith borrows the funds to purchase municipal bonds. Which of the following is TRUE concerning the interest on the loan?

A

The interest is a nondeductible expense.

56
Q

Which of the following municipal securities are backed by the full faith and credit of the U.S. government?

A

Public Housing Authority bonds (PHAs).

57
Q

All of the following are required by the MSRB on customer confirmations EXCEPT:

A

the amount of markdown or markup on a principal transaction.

58
Q

According to MSRB rules, a municipal securities dealer participating in a secondary market joint account may NOT:

A

provide quotes (while participating in a joint account) that indicate more than one market for the securities that are the subject of the account.

59
Q

Which of the following would be found in the agreement among underwriters for a municipal bond offering?

A

I. Amount of the concession.

II. Establishment of the takedown.

60
Q

Which of the following projects is most likely to be financed by a general obligation rather than a revenue bond?

A

New high school.

61
Q

Debt service is best described as the:

A

total of interest and principal payable by the issuer plus any amount required to be deposited into a sinking fund.

62
Q

You have a high-income client who wishes to maximize his after-tax interest income. Which of the following investments might NOT meet your client’s objective?

A

AA rated IDB.

63
Q

Moody’s Investment Grade (MIG) rating would be applicable to:

A

a New York State revenue anticipation note.

64
Q

The flow of funds on a municipal revenue issue is outlined in the

A

indenture.

65
Q

What is the profit to a syndicate member if a syndicate is offering an 8½% bond at 100, the syndicate manager is giving a .75 concession and a 1-point total takedown, and the syndicate member sells 1,000 bonds?

A

10000

66
Q

A member of a $5 million Eastern account that has a $500,000 participation fails to sell $200,000 of bonds. At the close of the offering, if $1 million of bonds remains unsold, the member must take down:

A

100000.

67
Q

An Eastern account underwriting of $100 million in municipal bonds is established. ALFA Securities agrees to underwrite 10% of the issue and sells out its allotment of $10 million. However, some of the other firms participating in the deal are not as successful, and $15 million of the bonds remain unsold. What is ALFA Securities’ financial obligation?

A

$1.5 million.

68
Q

All of the following statements regarding industrial revenue bonds are true EXCEPT:

A

the credit rating of the bonds is dependent on the credit rating of the municipality.

69
Q

Which of the following municipal issues would least likely involve overlapping debt?

A

An airport district.

70
Q

The interest that municipal securities pay is:

A

federally tax exempt.

71
Q

A customer purchases a municipal bond that has been advance refunded. It will be called at 102 four years from now. On the confirmation, the yield that must be stated is the yield to:

A

the 102 call.

72
Q

A city’s day-to-day operational expenses may be met by the issuance of:

A

TANs.

73
Q

The delivery of which of the following to a broker/dealer would be considered a fail to deliver?

A

I. A mutilated certificate.

II. A municipal bond without the legal opinion attached.

74
Q

Which of the following statements regarding callable municipal bonds are TRUE?

A

II. Call premiums tend to decrease over time.

III. Call prices are stated as a percentage of the principal amount to be called.

75
Q

Which of the following best describes a nominal municipal bond quotation?

A

Approximate price reflecting current market value with no bid or offer.

76
Q

A syndicate member in a municipal underwriting wishes to place an order with the manager for its own portfolio. Under MSRB rules, an order for a related portfolio must be:

A

disclosed to the manager.

77
Q

Your firm is a member of an underwriting syndicate for an issue of municipal bonds. The municipal syndicate release terms letter states that the bonds are being offered net, with a 2-point concession and a ½-point additional takedown. If your firm sells $100,000 of these bonds to a retail customer, it will receive a credit of:

A

2500.

78
Q

A resident of New York City purchases an Albany, New York general obligation bond and receives $600 of interest from that bond during the year. How is that $600 taxed?

A

It is not subject to federal income tax.

79
Q

The purchaser of a GO municipal bond should be concerned with

A

I. property tax assessments

II. market risk

80
Q

An underwriting bid for a municipal GO issue would include which of the following?

A

I. The dollar amount.

II. The coupon rate.

81
Q

The real value of property within the city limits is $100 million. The city uses a 50% assessment rate. A 10 mill tax rate will provide tax revenues of:

A

500000.

82
Q

A registered municipal bond salesperson at your firm has obtained discretionary power for the account of a physician in Gloucester County, New Jersey. The customer is conservative, avoids investment risk, and seeks principal with long-term growth potential. Given the following choices, the salesperson would most appropriately invest the customer’s money in:

A

New Jersey Turnpike revenue bonds rated Aa.

83
Q

The 30-day visible supply published in The Daily Bond Buyer contains:

A

general obligation and revenue bonds.

84
Q

Your customer, a small business owner likes investments that are short term, relatively safe from credit risk and liquid. He’s heard that higher rates of return can be realized from auction rate securities than the rates he is currently getting on the Treasury bills in his portfolio. He asks you to explain them to him. Which of the following would you note as being reasons why they are not suitable for your customer?

A

I. Auction rate securities are intended as long-term investments.
II. If the auction fails, holders of ARSs may not have immediate access to his funds.

85
Q

A dealer that quotes a concession of ½ to another dealer means:

A

$5 per $1,000 of par.

86
Q

The unqualified legal opinion on a municipal bond states that:

A

the issuer has the authority to issue bonds that are legal, valid, and enforceable obligations of the issuer.

87
Q

Moody’s Investment Grade (MIG) Ratings are applied to:

A

municipal notes.

88
Q

In what order are distributions paid under a net revenue pledge?

A

III. The operations and maintenance fund.
II. The debt service account.
IV. The debt service reserve account.
I. The surplus fund.

89
Q

Voter approval may be required for new bond issues for construction of which of the following?

A

III. State prisons

IV. Public high schools.

90
Q

Which of the following terms refer to municipal bond underwritings?

A

I. Best efforts.

II. Firm commitment.

91
Q

nder MSRB rules regarding municipal securities, a control relationship exists when

A

I. officers or employees of a broker/dealer hold positions of authority over the municipal issuer.
II. officials of the municipal issuer hold policymaking positions at the broker/dealer.

92
Q

An underwriter should consider all of the following factors when determining the spread on a new issue EXCEPT:

A

amount of the good faith check.

93
Q

The visible supply has been increasing steadily over the last 30 days. This is an indication that:

A

yields are likely to rise.

94
Q

A statutory debt limitation restricts a municipality’s authority regarding

A

issuing general obligation (GO) bonds.

95
Q

A city has issued bonds to construct a new sewage treatment facility. If the bonds are not backed by the full taxing authority of the city, all of the following statements about the bond issue are true EXCEPT:

A

the disbursement of principal and interest payments must be approved semiannually by the state public service commission.

96
Q

All of the following sources of revenue could be used to service general obligation debt EXCEPT:

A

user charges.

97
Q

A customer purchases a noncallable municipal bond at a discount in the secondary market. All of the following must be on the customer’s confirmation EXCEPT:

A

rating.

98
Q

Which of the following are directly backed by the U.S. government?

A

PHAs and NHAs.

99
Q

All of the following will be included on a confirmation for noncallable municipal bonds purchased on a yield basis EXCEPT:

A

taxable equivalent yield.

100
Q

Which of the following responsibilities did the MSRB receive through the Securities Acts Amendments of 1975?

A

I. Establishment of recordkeeping requirements for municipal broker/dealers.
II. Creation of regulations for participants in the municipal securities secondary market.

Series 7 (15 decks)

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