Question 1

The reasons for the exemption afforded municipal securities appear to relate to ________.

Accepted Answer

A)  a desire for harmonious and cooperative relations among the various levels of government in the United States. 
B)  the presence of recurrent abuses in transactions involving municipal securities. 
C)  the greater level of naïveté of investors in this segment of the securities markets. 
D)  the fact that there had been many defaults by municipal issuers 
A)  a desire for harmonious and cooperative relations among the various levels of government in the United States. 
B)  the presence of recurrent abuses in transactions involving municipal securities. 
C)  the greater level of naïveté of investors in this segment of the securities markets. 
D)  the fact that there had been many defaults by municipal issuers A

Question 2

To evaluate general obligation bonds, the commercial rating companies assess information in four basic categories. Describe two of these categories.

Accepted Answer

To evaluate general obligation bonds, the commercial rating companies assess information in four basic categories. The first category includes information on the issuer's debt structure and overall debt burden. The second category relates to the issuer's ability and political discipline to maintain sound budgetary policy. The focus of attention here usually is on the issuer's general operating funds and whether it has maintained at least balanced budgets over three to five years. The third category involves determining the specific local taxes and intergovernmental revenues available to the issuer, as well as obtaining historical information both on tax collection rates, which are important when looking at property tax levies, and on the dependence of local budgets on specific revenue sources. The fourth and last category of information necessary to the credit analysis is an assessment of the issuer's overall socioeconomic environment. The determinations that have to be made here include trends of local employment distribution and composition, population growth, real estate property valuation, and personal income, among other economic factors.

Question 3

Besides tax-backed debt, the other basic type of security structure is found in a ________ bond. Such bonds are issued for either project or enterprise financings where the bond issuers pledge to the bondholders the revenues generated by the ________.

Accepted Answer

A)  revenue; taxing power of state and local governments 
B)  enterprise; operating projects financed 
C)  revenue; operating projects financed 
D)  enterprise; taxing power of state and local governments 
A)  revenue; taxing power of state and local governments 
B)  enterprise; operating projects financed 
C)  revenue; operating projects financed 
D)  enterprise; taxing power of state and local governments D

Question 4

A loss of the tax-exemption feature of a municipal bond will most likely cause it ________.

Accepted Answer

A)  to rise in value in order to provide a yield comparable to similar taxable bonds. 
B)  to be called by the city. 
C)  to default. 
D)  to decline in value in order to provide a yield comparable to similar taxable bonds. 
A)  to rise in value in order to provide a yield comparable to similar taxable bonds. 
B)  to be called by the city. 
C)  to default. 
D)  to decline in value in order to provide a yield comparable to similar taxable bonds.

Question 5

Dealer spreads depend on several factors. For the retail investor, the dealer spread rarely exceeds one-half of one point ($25 per $5,000 of par value).

Accepted Answer

A) True 
 B)False

Question 6

A reason why a municipality would want to issue a taxable municipal bond and thereby have to pay a higher yield (than if it issued a tax-exempt municipal bond) is because ________.

Accepted Answer

A)  there are few activities that municipalities could finance by issuing tax-exempt municipal bonds. 
B)  the U.S. income tax code imposes restrictions on arbitrage opportunities that a municipality can realize from its financing activities. 
C)  municipalities view their potential investor base as solely U.S. investors. 
D)  All of these 
A)  there are few activities that municipalities could finance by issuing tax-exempt municipal bonds. 
B)  the U.S. income tax code imposes restrictions on arbitrage opportunities that a municipality can realize from its financing activities. 
C)  municipalities view their potential investor base as solely U.S. investors. 
D)  All of these

Question 7

A revenue bond is issued for either project or enterprise financings where the bond issuer pledges the revenues generated by the project that is financed to the bondholders.

Accepted Answer

A) True 
 B)False

Question 8

Contrast the yield on municipal bonds with that on Treasuries.

Accepted Answer

Because of the tax-exempt feature of mun

Question 9

The factors used to determine a rating for a general obligation bond are different from those used for a revenue bond.

Accepted Answer

A) True 
 B)False

Question 10

Municipal notes are issued for periods up to two years and represent temporary borrowings by states, local governments, and special jurisdictions.

Accepted Answer

A) True 
 B)False

Question 11

To evaluate general obligation bonds, the commercial rating companies assess information in four basic categories including ________.

Accepted Answer

A)  information necessary to the credit analysis is an assessment of the issuer's overall socioeconomic environment. 
B)  information on the issuer's debt structure and overall debt burden. 
C)  the issuer's ability and political discipline to maintain sound budgetary policy. 
D)  All of these 
A)  information necessary to the credit analysis is an assessment of the issuer's overall socioeconomic environment. 
B)  information on the issuer's debt structure and overall debt burden. 
C)  the issuer's ability and political discipline to maintain sound budgetary policy. 
D)  All of these

Question 12

A general obligation bond is secured by the issuer's limited taxing power.

Accepted Answer

A) True 
 B)False

Question 13

Although originally issued as either revenue or general obligation bonds, municipals are sometimes prerefunded and called ________.

Accepted Answer

A)  structured/asset-based municipal bonds. 
B)  hospital revenue bonds. 
C)  prerefunded municipal bonds. 
D)  insured bonds. 
A)  structured/asset-based municipal bonds. 
B)  hospital revenue bonds. 
C)  prerefunded municipal bonds. 
D)  insured bonds.

Question 14

In the secondary market, ________ are maintained by regional brokerage firms, local banks, and by some of the larger Wall Street firms.

Accepted Answer

A)  markets for the bonds of larger issuers 
B)  markets for regional credits 
C)  markets for general names 
D)  markets for the debts of smaller issuers 
A)  markets for the bonds of larger issuers 
B)  markets for regional credits 
C)  markets for general names 
D)  markets for the debts of smaller issuers

Question 15

Congress passed the Securities Act Amendment of 1975 to narrow federal regulation in the market for municipal debt.

Accepted Answer

A) True 
 B)False

Question 16

The most common types of activities for taxable municipal bonds used for financing include ________.

Accepted Answer

A)  local sports facilities and investor-led housing projects. 
B)  advanced refunding of issues that are not permitted to be refunded because the tax law prohibits such activity. 
C)  underfunded pension plan obligations of the municipality. 
D)  All of these 
A)  local sports facilities and investor-led housing projects. 
B)  advanced refunding of issues that are not permitted to be refunded because the tax law prohibits such activity. 
C)  underfunded pension plan obligations of the municipality. 
D)  All of these

Question 17

States and local governments can issue bonds where the debt service is to be paid from so-called "dedicated" revenues such as sales taxes, tobacco settlement payments, fees, and penalty payments. These structures, are called ________, and are also referred to as dedicated revenue bonds and structured bonds.

Accepted Answer

A)  asset-backed bonds 
B)  public power revenue bonds 
C)  insured bonds 
D)  prerefunded bonds 
A)  asset-backed bonds 
B)  public power revenue bonds 
C)  insured bonds 
D)  prerefunded bonds

Question 18

For a tax-exempt municipal security, as the marginal tax rate ________, the price of a tax?exempt municipal security will ________.

Accepted Answer

A)  declines; rise. 
B)  declines; decline. 
C)  rises; rise. 
D)  rises; decline. 
A)  declines; rise. 
B)  declines; decline. 
C)  rises; rise. 
D)  rises; decline.

Question 19

From an investor's perspective, the attractiveness of municipal securities is due to their ________.

Accepted Answer

A)  tax treatment at the federal income tax level. 
B)  exemption from capital gains federal income tax level. 
C)  exemption from capital gains at the state income tax level. 
D)  All of these 
A)  tax treatment at the federal income tax level. 
B)  exemption from capital gains federal income tax level. 
C)  exemption from capital gains at the state income tax level. 
D)  All of these

Question 20

There are two types of municipal securities: tax-backed debt and revenue bonds.

Accepted Answer

A) True 
 B)False

Exam 16: Municipal Securities Markets

The reasons for the exemption afforded municipal securities appear to relate to ________.

To evaluate general obligation bonds, the commercial rating companies assess information in four basic categories. Describe two of these categories.

Besides tax-backed debt, the other basic type of security structure is found in a ________ bond. Such bonds are issued for either project or enterprise financings where the bond issuers pledge to the bondholders the revenues generated by the ________.

A loss of the tax-exemption feature of a municipal bond will most likely cause it ________.

Dealer spreads depend on several factors. For the retail investor, the dealer spread rarely exceeds one-half of one point ($25 per $5,000 of par value).

A reason why a municipality would want to issue a taxable municipal bond and thereby have to pay a higher yield (than if it issued a tax-exempt municipal bond) is because ________.

A revenue bond is issued for either project or enterprise financings where the bond issuer pledges the revenues generated by the project that is financed to the bondholders.

Contrast the yield on municipal bonds with that on Treasuries.

The factors used to determine a rating for a general obligation bond are different from those used for a revenue bond.

Municipal notes are issued for periods up to two years and represent temporary borrowings by states, local governments, and special jurisdictions.

To evaluate general obligation bonds, the commercial rating companies assess information in four basic categories including ________.

A general obligation bond is secured by the issuer's limited taxing power.

Although originally issued as either revenue or general obligation bonds, municipals are sometimes prerefunded and called ________.

In the secondary market, ________ are maintained by regional brokerage firms, local banks, and by some of the larger Wall Street firms.

Congress passed the Securities Act Amendment of 1975 to narrow federal regulation in the market for municipal debt.

The most common types of activities for taxable municipal bonds used for financing include ________.

For a tax-exempt municipal security, as the marginal tax rate ________, the price of a tax?exempt municipal security will ________.

From an investor's perspective, the attractiveness of municipal securities is due to their ________.

There are two types of municipal securities: tax-backed debt and revenue bonds.

Introduction

Financial Institutions, Financial Intermediaries, and Asset Management Firms

Depository Institutions: Activities and Characteristics

The U.S. Federal Reserve and the Creation of Money

Monetary Policy in the United States

Insurance Companies

Investment Companies and Exchange Traded Funds

Pension Funds

Properties and Pricing of Financial Assets

The Level and Structure of Interest Rates

The Term Structure of Interest Rates

Risk/Return and Asset Pricing Models

Primary Markets and the Underwriting of Securities

Secondary Markets

Treasury and Agency Securities Markets

Markets for Common Stock: The Basic Characteristics

Markets for Common Stock: Structure and Organization

Markets for Corporate Senior Instruments: I

Markets for Corporate Senior Instruments: II

The Markets for Bank Obligations

The Residential Mortgage Market

Mortgage-Backed Securities Market

Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

Market for Asset-Backed Securities

Financial Futures Markets

Options Markets

Pricing of Futures and Options Contracts

The Applications of Futures and Options Contracts

OTC Interest Rate Derivatives: Forward Rate Agreements, Swaps, Caps, and Floors

Market for Credit Risk Transfer Vehicles: Credit Derivatives and Collateralized Debt Obligations

The Market for Foreign Exchange and Risk Control Instruments

Filters

Besides tax-backed debt, the other basic type of security structure is found in a bond. Such bonds are issued for either project or enterprise financings where the bond issuers pledge to the bondholders the revenues generated by the .

For a tax-exempt municipal security, as the marginal tax rate , the price of a tax?exempt municipal security will .