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Series 7: Lecture Review > Unit 6: Muni. Debt Securities > Flashcards

Unit 6: Muni. Debt Securities Flashcards

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Series 7 Top-off Exam flashcards
1
Q

Primary objective of muni bonds?

A

tax-free interest income, good for client in higher tax bracket

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2
Q

Muni bonds are exempt from which tax?

A

Federal

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3
Q

When are muni bonds tax-free at all levels?

A

in-state bonds (triple tax free; federal, state, local)

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4
Q

Muni bonds capital gains tax-free?

A

NO

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5
Q

Statutory Debt Limit

A

GO Bonds
protects taxpayers from excessive borrowing
EX: borrow 2% of FMV taxable property

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6
Q

Adjacent Debt

A

GO Bonds
when multiple issuers jointly raise capital
EX: Kent and Sussex County issue bonds together
“Overlapping”
next to

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7
Q

Coterminus Debt

A

GO Bonds
When issuers tax the same property
EX: Kent County and Dover City
“Overlapping”
inside

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8
Q

Revenue Bonds

A

Int and principal paid from muni revenue
Not subject to statutory debt limits

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9
Q

Revenue bond holder may prefer trust indenture that protects bond holders with…

A

Covenants
(not required)

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10
Q

Rev Bonds backed by revenue and state taxes?

A

Double-Barrel: must use tax
Moral Obligation: may use tax

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11
Q

Safest Revenue Bond

A

New Housing Authority Bonds

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12
Q

Muni Bond Insurance

A

insurance company’s guarantee of the payment of principal and interest on a muni bond issue if the issuer defaults
insured bonds need to deliver proof of insurance
If failed, payments are made as originally scheduled (no lump sum)

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13
Q

Sinking Fund

A

Issuer may facilitate a bond’s redemption.
More marketable

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14
Q

Can a Muni pay a floating/variable interest rate?

A

Yes, and its price is stable
“Reset Bonds”

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15
Q

Build America Bonds (BABs)

A

Muni pays federally taxable interest income but provides a federal tax credit for taxes paid.

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16
Q

Primary Market (new issues) information source

A

The Bond Buyer
- 30-Day Visible Supply: $ of issues
- Placement Ratios: demand for muni
- Muni Price Index

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17
Q

Secondary Market (trading date) information source

A

Electronic Municipal Market Access (EMMA)
- Trade Date & Disclosures
users: retail investors

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18
Q

Negotiated Bid Underwriting

A

Muni selects bank (underwriter)

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19
Q

Competitive Bid Underwriting

A

Muni -> notice of sale -> Syndicate Bids -> Award the Issue -> Distribute Bonds

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20
Q

Distribute Bonds order of sale

A

Pro Golgers Dont Miss
- Pre-sale
- Group
- Designated
- Member

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21
Q

Western Account

A

Syndicate relationship where if you do not sell all your promised bonds you are the only one on the hook (‘takes down”).
No shared liability

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22
Q

Eastern Account

A

Shared Liability, if you dont sell all promised bonds, liability shares with other members of the syndicate.

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23
Q

Who is paid first in a net revenue pledge?

A
  1. Operations and maintenance
  2. Interest payments
24
Q

Bond Contract

A

Trust Indenture w/ trustee
Flow of funds statement

25
Q

Official Statement

A

discourse (like a prospectus)
not required because munis are exempt securities

26
Q

Legal Opinion

A

Prepared by bond counsel to validate bond’s TAX EXEMPT status and muni legal authority to issue them.
Prefer NON-QUALIFIED

27
Q

Muni bonds are sold on a when-issued basis, the only item to be included on the trade confirmation is the…

A

interest rate

28
Q

Muni bonds trade on:

A

OTC

29
Q

Muni serial bonds (tranches) are quoted:

A

on YTM

30
Q

nominal or subject quote is:

A

Non-firm

31
Q

Muni round lot has a face amount of:

A

$100,000

32
Q

A broker’s broker provides:

A

anonymity

33
Q

A muni bond trade is reported to:

A

RTRS (real time reporting system) within 15 minutes

34
Q

Muni to Corp Bond calculation

A

Muni % / (1 - tax %) = Corp %

35
Q

Corp to Muni Bond calulation

A

Corp % x (1 - tax %) = Muni %

36
Q

Auction Rate Securities (ARS)

A

long term debt securities with int rates that are periodically reset through autions

37
Q

ARS int rate tied to:

A

short term rates

38
Q

ARS issued and rated as:

A

long term bonds

39
Q

ARS priced and traded as:

A

short term bonds

40
Q

ARS securities are auctioned at:

A

par value

41
Q

Int paid on ARS is set by the:

A

clearing rate: lowest bid rate where all are sold

42
Q

Main risk of ARS:

A

failed auction (no clearing rate)

43
Q

Broker-brokers’ clients are:

A

other muni dealers and institutions (not retail)

44
Q

Bonds that are “held firm for 1 hour w/ a 5-min recall” means:

A

Fixed price for 1 hour
Broker can pull offer within 5 mins warning

45
Q

unds set aside each year to pay off a muni bond at maturity are:

A

Sinking Fund
more attractive ,lower risk, lower coupon

46
Q

Can muni bonds be delivered w/o legal opinion?

A

Yes

47
Q

What is a 6% J&D 15 muni bond?

A

6% coupon
pays June/December
15th of month is paid

48
Q

Corp & Munis accrue:

A

30-day months
360 days a yr
T + 2

49
Q

Government Bonds accrue:

A

actual days per month
365 days per year
T + 1

50
Q

Accrued int per month (muni) December

A

Dec 1-14: 14 days
Dec 15-30: 16 days

51
Q

Premium Bonds (cost basis)

A

Amortize

52
Q

Discount Bonds (cost basis)

A

Accrete

53
Q

Discount bonds taxation:

A

New issues (OID): untaxed
Secondary Market: taxed

54
Q

Defeased Bond

A

muni escrows government securities sufficient to cover the interest and principal payments of a bond until maturity: “escrowed to maturity”
The debt is no longer a liability of the muni

55
Q

When a new bond is issued, interest will begin accruing on which date?

A

Dated date

Series 7: Lecture Review (20 decks)

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