Progress Exam 2

Question 1

What is the conversion price of a bond

Answer 1

Bond par value/ conversion ratio

Question 2

What is Moody’s lowest rating on an investment grade muni

Answer 2

MIG 3

Question 3

What does a RR by to minimize principle risk due to fluctuating interest rates

Answer 3

Short term bonds minimize principle risk due to fluctuating interest rates

Question 4

What are the two main worries about the T-bond

Answer 4

Interest and timing risk

Question 5

When you buy a bond at a discount and sell at a premium this is what

Answer 5

Appreciation

Question 6

When a premium bond decreases in value this is

Answer 6

Amortization

Question 7

When you increase the value of a bond each year of a zero coupon bond issued at a discount this is

Answer 7

Accretion

Question 8

What is a reverse security

Answer 8

A short term note issued by a bank or broker dealer that usually pays the coupon above market rate could have to purchase fixed assets if price falls below the knock in level and lose substantial money. This is most of that desirable for those who seek higher yields and anticipate the value of underlying asset will be stable

Question 9

Can two firms form a joint account for muni

Answer 9

Two firms can form a joint account but must issue only one quote on position held to be published in the second market

Question 10

What can direct pay build America bonds be used for and what can they not be used for

Answer 10

They cannot be used to finance refundings working capital and private activity bonds.

Question 11

What are fanny Mae bonds suitable for

Answer 11

Suitable for income and they have a slightly higher yield and highly dependent on current interest-rate’s

Question 12

Muni rules require quotes to be

Answer 12

Bona-fide(form at given time)

Question 13

What will increase and decrease the credit rating as a municipal bond

Answer 13

An increase in assessed a valuations but improve immunity credit. Consumer debt default bankruptcy will deteriorate the credit

Question 14

What does it mean when a project is backed by net revenues

Answer 14

This means Debt service is the first item paid for after operating expenses are paid on a municipal bond

Question 15

What does it mean when a bond is called for redemption

Answer 15

When a bond is called for ademption it means the bondholder can only redeem the bond at call price or sell it in the market the holder can’t wait for a better offer or hold it to maturity

Question 16

What is important when determining the credit of a municipal bond

Answer 16

The condition of the local economy and fiscal managers of the bond are important when determining credit. The local economy and overall money supply in the US economy or not

Question 17

What is the best muni rating on the SP scale

Answer 17

SP-1

Question 18

Proceeds of a refund deposit into an account to pay interest and principal on issue being refunded to maturity on outstanding bonds are said to be

Answer 18

Escrow to maturity

Question 19

What are auction rate securities

Answer 19

They are alternative to short-term but long-term securities if they felt an option it might not have access to funds. The auction rate is set at the lowest rate that matches the supply and demand and this is known as the clearing rate

Question 20

What type of CMO’s have the most credit risk

Answer 20

Private label CMO

Question 21

What are three things most helpful when analyzing the credit risk of municipal bonds

Answer 21

Tax base of the issue, unfunded pension, and the schedule of debt service

Question 22

Auctioneer bonds are not suitable for

Answer 22

Someone who needs liquidity

Question 23

If interest rates are stable convertible debentures have what?

Answer 23

Have potential for capital appreciation. Stable interest rates help keep the bond price in vicinity of par

Question 24

Parity is achieved when

Answer 24

The value of the bond is equal to the value of the common stock derived from the convertible bond

Question 25

What is the definition of a serial bond

Answer 25

A bond that will mature sequentially

Question 26

What is ad valorem tax and what bonds are usually secured by it

Answer 26

Ad valorem tax is based on property value. School districts and local government secured by this tax

Question 27

What is the formula for current yield

Answer 27

Yearly interest payments divided by the market price of bonds

Question 28

What type of bonds are riskier revenue or general obligation

Answer 28

Revenue bonds

Question 29

Moral obligation bonds result in debt becoming the responsibility of who

Answer 29

The state legislature

Question 30

What class of CMO bonds have the least prepayment risk

Answer 30

Planned and more class is the CMO with the least prepayment risk this is for the most risk averse. Has top priority in pre determined. Schedule schedule repayment

Question 31

What is the highest speculative bond rating for SP

Answer 31

BB

Question 32

What rating agency has all capitals

Answer 32

SP

Question 33

What rating agency has capitals and lowercase

Answer 33

Moody’s

Question 34

What must

In an investor On a discounted muni bar in the second market

Answer 34

A customer will need to pay tax on the prorated amount of discount each year if the investor buys the Muni at a discount in the second market. This must be accretion each year and the creation is exempt from federal tax

Question 35

What is the corporate dividend exclusion rule

Answer 35

This is available for cash dividends on common and preferred stock. If the corporation owns less than 20% of the corporation 50% of the dividend income will be excluded from corporate income. If the corporation owns 20% or more district beauty and Corp. the corporation exclusion is 65% of the total dividends received. REITS don’t qualify for the dividend exclusion. Mutual funds will sometimes qualify. If a mutual fund invest in fixed income then might not qualify