Municipal Securities - The Primary Market quiz questions

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| By Lpinchik

Lpinchik

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Quizzes Created: 2 | Total Attempts: 183

Questions: 10 | Attempts: 99 | Updated: Feb 9, 2024

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Questions and Answers

1.

Which of the following does not describe Tax Exemption?
- A.
  
  Interest from most municipal securities is exempt from federal income taxes
- B.
  
  Daily reference rate based on the interest rates at which banks borrow funds from other banks in the London wholesale money market
- C.
  
  Each state exempts interest on its own municipal securities from its residents’ personal income tax.
- D.
  
  A state may exempt interest paid by another state’s municipal securities.
Correct Answer
B. Daily reference rate based on the interest rates at which banks borrow funds from other banks in the London wholesale money market

Explanation
Daily reference rate based on the interest rates at which banks borrow funds from other banks in the London wholesale money market are in reference to Taxable Bonds. Short-term taxable municipal bonds are priced as a spread to the London Interbank Offered Rate (LIBOR).

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2.

Which of the following is not a characteristic of a rating agency?
- A.
  
  Assigns rating to a bond issuance
- B.
  
  Update ratings periodically while debt is outstanding
- C.
  
  Maximizes pricing competition between providers
- D.
  
  May be consulted on potential credit structures and fiscal actions
Correct Answer
C. Maximizes pricing competition between providers

Explanation
Maximizing pricing competition between providers is part of credit enhancement.

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3.

Which of the following describes a Fixed Rate Bond?
- A.
  
  Unsecured promissory notes
- B.
  
  10, 20, 30-year maturities
- C.
  
  Usually mature in one year or less
- D.
  
  Coupon rate is reset periodically
- E.
  
  Bank letter or credit required
Correct Answer
B. 10, 20, 30-year maturities

Explanation
A Fixed Rate Bond is a type of bond that has a predetermined interest rate for the entire duration of the bond. The bondholder will receive fixed interest payments at regular intervals until the bond matures. In this case, the answer "10, 20, 30-year maturities" describes a Fixed Rate Bond because it specifies the different time periods for which the bond can be held before it reaches its maturity date.

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4.

When preparing for pricing which of the following is a characteristic of underwriting liability?
- A.
  
  Providing incentives to perform
- B.
  
  Promoting equal opportunities
- C.
  
  Proportionate share of bonds assumed by team members
- D.
  
  Broadening distribution
- E.
  
  Lowering costs
Correct Answer
C. Proportionate share of bonds assumed by team members

Explanation
Underwriting liability involves the assumption of financial risk by a team of individuals. Each team member is responsible for a proportionate share of the bonds being underwritten. This characteristic ensures that the risk is distributed among the team members, reducing the burden on any one individual. By assuming a proportionate share of the bonds, team members are incentivized to perform well and carefully assess the risk involved in underwriting. This helps to ensure that the pricing of the bonds is accurate and appropriate.

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5.

The fundamental elements of a bond include:
- A.
  
  Price
- B.
  
  Coupon
- C.
  
  Par Amount
- D.
  
  Yield
- E.
  
  All of the above
Correct Answer
E. All of the above

Explanation
The correct answer is "All of the above" because all of the mentioned elements - Price, Coupon, Par Amount, and Yield - are fundamental components of a bond. Price refers to the current market value of the bond, Coupon is the fixed interest payment that the bondholder receives, Par Amount is the face value of the bond, and Yield is the rate of return on the bond. All of these elements are crucial in understanding and evaluating a bond.

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6.

_________ is the date the principal of a municipal bond becomes due and payable to the bondholder.
- A.
  
  Expenses
- B.
  
  Debt management
- C.
  
  Trustee
- D.
  
  Maturity
Correct Answer
D. Maturity

Explanation
Maturity refers to the date when the principal amount of a municipal bond becomes due and payable to the bondholder. It is the point at which the bond reaches its full term and the issuer is obligated to repay the initial investment. This is an important concept for bondholders as it represents the point at which they will receive their principal back.

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7.

What is debt service?
- A.
  
  The term for the schedule upon which bonds pay principal and interest to the investor/bond holders.
- B.
  
  Benefit of Long-Term Banking Support for Long-Term Capital Program Needs.
- C.
  
  The Syndicate which Names the Lowest Interest Cost is the Winning Bidder.
- D.
  
  All of the above
Correct Answer
A. The term for the schedule upon which bonds pay principal and interest to the investor/bond holders.

Explanation
Debt service refers to the schedule or plan in which bonds make payments to the investor or bond holders, including both principal and interest. It is the term used to describe the process of repaying the borrowed money to the lenders.

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8.

Which of these is not the duty of a financial advisor (FA)?
- A.
  
  Assists in developing the financing plan
- B.
  
  Assists in underwriter evaluation and selection
- C.
  
  Assists in preparing rating agency presentations
- D.
  
  Evaluates market conditions and pricing performance of senior manager
- E.
  
  All of the above are duties of a financial advisor
Correct Answer
E. All of the above are duties of a financial advisor

Explanation
The given correct answer is "All of the above are duties of a financial advisor." This means that all of the tasks listed, including assisting in developing the financing plan, assisting in underwriter evaluation and selection, assisting in preparing rating agency presentations, and evaluating market conditions and pricing performance of senior managers, are responsibilities of a financial advisor.

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9.

What documents are included in a bond issuance?
- A.
  
  Legal opinion
- B.
  
  Tax certificate
- C.
  
  Offical statement
- D.
  
  Bond resolution
- E.
  
  All of the above
Correct Answer
E. All of the above

Explanation
All of the documents mentioned - legal opinion, tax certificate, official statement, and bond resolution - are included in a bond issuance. These documents are essential for ensuring the legality, tax compliance, and disclosure of information related to the bond issuance. Including all of these documents helps provide transparency and protection for both the issuer and the investors involved in the bond issuance process.

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10.

What is a yield curve?
- A.
  
  Daily reference rate based on the interest rates at which banks borrow funds from other banks in the London wholesale money market.
- B.
  
  The relation between the interest rate (or cost of borrowing) and the time to maturity of the debt.
- C.
  
  Competition for negotiated financings minimized spread difference.
- D.
  
  Evaluation of market conditions and pricing performance of senior manager
Correct Answer
B. The relation between the interest rate (or cost of borrowing) and the time to maturity of the debt.

Explanation
A yield curve is a graphical representation of the relationship between the interest rate and the time to maturity of debt. It shows the different yields or interest rates for bonds or other fixed-income securities with different maturity dates. The yield curve is important as it provides insights into market expectations about future interest rates, economic growth, and inflation. By analyzing the shape and movement of the yield curve, investors and policymakers can make informed decisions regarding investments, monetary policy, and economic forecasts.

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Current Version
Feb 09, 2024

Quiz Edited by
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Apr 25, 2011

Quiz Created by
Lpinchik

Municipal Securities - The Primary Market Quiz Questions

Which of the following does not describe Tax Exemption?

Which of the following is not a characteristic of a rating agency?

Which of the following describes a Fixed Rate Bond?

When preparing for pricing which of the following is a characteristic of underwriting liability?

The fundamental elements of a bond include:

_________ is the date the principal of a municipal bond becomes due and payable to the bondholder.

What is debt service?

Which of these is not the duty of a financial advisor (FA)?

What documents are included in a bond issuance?

What is a yield curve?