Question 1

In regards to the yields on municipal bonds, the difference in yield between tax-exempt securities and Treasury securities is typically measured ________.

Accepted Answer

A)  not in basis points but in percentage terms. 
B)  not in percentage terms but in basis points. 
C)  in either basis points or in percentage terms. 
D)  in spread decimals. 
A)  not in basis points but in percentage terms. 
B)  not in percentage terms but in basis points. 
C)  in either basis points or in percentage terms. 
D)  in spread decimals.

Question 2

Specifically speaking, the difference in yield between tax-exempt securities and Treasury securities is measured as the percentage of the yield on a municipal security relative to a comparable Treasury security and is called the yield ratio.

Accepted Answer

A) True 
 B)False

Question 3

In regards to the primary market for municipal obligations, which of the below statements is TRUE?

Accepted Answer

A)  A state or local government can market its new issue by offering bonds publicly to the investing community or by placing them privately with a small group of investors. 
B)  A small number of municipal obligations are brought to market each week. 
C)  When a private offering is selected, the issue usually is underwritten by investment bankers and/or municipal bond departments of commercial banks. 
D)  Public offerings may be marketed by either competitive bidding or direct negotiations with underwriters. In the direct negotiations process, the bidder submitting the lowest bid price for the security gets the right to market the debt to investors. 
A)  A state or local government can market its new issue by offering bonds publicly to the investing community or by placing them privately with a small group of investors. 
B)  A small number of municipal obligations are brought to market each week. 
C)  When a private offering is selected, the issue usually is underwritten by investment bankers and/or municipal bond departments of commercial banks. 
D)  Public offerings may be marketed by either competitive bidding or direct negotiations with underwriters. In the direct negotiations process, the bidder submitting the lowest bid price for the security gets the right to market the debt to investors.

Question 4

Which of the below statements is FALSE?

Accepted Answer

A)  Examples of revenue bonds include: airport revenue bonds, college and university revenue bonds, hospital revenue bonds, and single-family mortgage revenue bonds. 
B)  The escrow fund for a prerefunded municipal bond can be structured so that the bonds to be refunded are to be called at the first possible call date or a subsequent call date established in the original bond indenture. 
C)  Insurance on a municipal bond is an agreement by the government to pay the bondholder any bond principal and/or coupon interest that is due on a stated maturity date but that has not been paid by the bond issuer. 
D)  None of these 
A)  Examples of revenue bonds include: airport revenue bonds, college and university revenue bonds, hospital revenue bonds, and single-family mortgage revenue bonds. 
B)  The escrow fund for a prerefunded municipal bond can be structured so that the bonds to be refunded are to be called at the first possible call date or a subsequent call date established in the original bond indenture. 
C)  Insurance on a municipal bond is an agreement by the government to pay the bondholder any bond principal and/or coupon interest that is due on a stated maturity date but that has not been paid by the bond issuer. 
D)  None of these

Question 5

Give two reasons 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?

Accepted Answer

Below are three reasons why a municipali

Question 6

Tax-exempt municipal securities buyers are exposed to ________.

Accepted Answer

A)  four types of tax risk. 
B)  the possibility that the federal income tax rate will be increased. 
C)  three types of tax risk. 
D)  the possibility that a municipal bond issued as a tax-exempt issue may be eventually declared by the Internal Revenue Service to be taxable. 
A)  four types of tax risk. 
B)  the possibility that the federal income tax rate will be increased. 
C)  three types of tax risk. 
D)  the possibility that a municipal bond issued as a tax-exempt issue may be eventually declared by the Internal Revenue Service to be taxable.

Question 7

Briefly explain the convention for quoting corporate bonds,Treasury bonds, and municipal bonds.

Accepted Answer

The convention for both corporate and Tr

Question 8

Tax-backed debt includes ________.

Accepted Answer

A)  general obligation debt. 
B)  appropriation-backed obligations. 
C)  debt obligations supported by public credit enhancement programs. 
D)  All of these 
A)  general obligation debt. 
B)  appropriation-backed obligations. 
C)  debt obligations supported by public credit enhancement programs. 
D)  All of these

Question 9

Describe an insured bond. In your description point out its backing, the nature of its agreement, and its term.

Accepted Answer

Insured bonds, in addition to being secu

Question 10

There are two types of tax risk to which tax-exempt municipal securities buyers are exposed. Describe one of these two types.

Accepted Answer

There are two types of tax risk to which

Question 11

________, in addition to being secured by the issuer's revenue, are also backed by insurance policies written by commercial insurance companies.

Accepted Answer

A)  Structured/asset-based bonds 
B)  Airport revenue bonds 
C)  Prerefunded bonds 
D)  Insured bonds 
A)  Structured/asset-based bonds 
B)  Airport revenue bonds 
C)  Prerefunded bonds 
D)  Insured bonds

Question 12

Taxable municipal bonds are bonds whose interest is taxed at the ________. Because there is no tax advantage, an issuer must offer a ________ than for another tax-exempt municipal bond.

Accepted Answer

A)  federal income tax level; lower yield 
B)  state income tax level; lower yield 
C)  foreign income tax level; higher yield 
D)  federal income tax level; higher yield 
A)  federal income tax level; lower yield 
B)  state income tax level; lower yield 
C)  foreign income tax level; higher yield 
D)  federal income tax level; higher yield

Question 13

Municipal bonds generally are traded and quoted in terms of yield (yield to maturity or yield to call). The price of the bond in this case is called a basis price.

Accepted Answer

A) True 
 B)False

Question 14

The Bond Seller provides information on upcoming competitive sales and most negotiated sales, as well as the results of previous weeks.

Accepted Answer

A) True 
 B)False

Question 15

In a competitive process, the bidder submitting the highest bid price for the security gets the right to market the debt to investors.

Accepted Answer

A) True 
 B)False

Question 16

________ have long been considered second in safety only to U.S. Treasury securities.

Accepted Answer

A)  Municipal bonds 
B)  State bonds 
C)  Federal bonds 
D)  Foreign bonds 
A)  Municipal bonds 
B)  State bonds 
C)  Federal bonds 
D)  Foreign bonds

Question 17

The investor in a municipal security is not exposed to credit risk.

Accepted Answer

A) True 
 B)False

Question 18

A tax risk associated with investing in municipal bonds is that a tax-exempt issue may be eventually declared by the Internal Revenue Service to be taxable.

Accepted Answer

A) True 
 B)False

Question 19

The Municipal Securities Rulemaking Board (MSRB) has no enforcement or inspection authority.

Accepted Answer

A) True 
 B)False

Question 20

In the Treasury but not the corporate bond markets, it is not unusual to find at different times shapes for the yield curve.

Accepted Answer

A) True 
 B)False

Exam 16: Municipal Securities Markets

In regards to the yields on municipal bonds, the difference in yield between tax-exempt securities and Treasury securities is typically measured ________.

Specifically speaking, the difference in yield between tax-exempt securities and Treasury securities is measured as the percentage of the yield on a municipal security relative to a comparable Treasury security and is called the yield ratio.

In regards to the primary market for municipal obligations, which of the below statements is TRUE?

Which of the below statements is FALSE?

Give two reasons 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?

Tax-exempt municipal securities buyers are exposed to ________.

Briefly explain the convention for quoting corporate bonds,Treasury bonds, and municipal bonds.

Tax-backed debt includes ________.

Describe an insured bond. In your description point out its backing, the nature of its agreement, and its term.

There are two types of tax risk to which tax-exempt municipal securities buyers are exposed. Describe one of these two types.

________, in addition to being secured by the issuer's revenue, are also backed by insurance policies written by commercial insurance companies.

Taxable municipal bonds are bonds whose interest is taxed at the ________. Because there is no tax advantage, an issuer must offer a ________ than for another tax-exempt municipal bond.

Municipal bonds generally are traded and quoted in terms of yield (yield to maturity or yield to call). The price of the bond in this case is called a basis price.

The Bond Seller provides information on upcoming competitive sales and most negotiated sales, as well as the results of previous weeks.

In a competitive process, the bidder submitting the highest bid price for the security gets the right to market the debt to investors.

________ have long been considered second in safety only to U.S. Treasury securities.

The investor in a municipal security is not exposed to credit risk.

A tax risk associated with investing in municipal bonds is that a tax-exempt issue may be eventually declared by the Internal Revenue Service to be taxable.

The Municipal Securities Rulemaking Board (MSRB) has no enforcement or inspection authority.

In the Treasury but not the corporate bond markets, it is not unusual to find at different times shapes for the yield curve.

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

Taxable municipal bonds are bonds whose interest is taxed at the . Because there is no tax advantage, an issuer must offer a than for another tax-exempt municipal bond.