Municipal Securities - The Primary Market
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Which of the following does not describe Tax Exemption?
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Interest from most municipal securities is exempt from federal income taxes
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Daily reference rate based on the interest rates at which banks borrow funds from other banks in the London wholesale money market
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Each state exempts interest on its own municipal securities from its residents’ personal income tax.
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A state may exempt interest paid by another state’s municipal securities.
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Explore the fundamentals of municipal securities in the primary market. This quiz covers topics like tax exemption, bond ratings, characteristics of fixed-rate bonds, underwriting liabilities, and key bond elements. Essential for learners aiming to understand municipal bond issuance and management.
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- 2.
Which of the following is not a characteristic of a rating agency?
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Assigns rating to a bond issuance
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Update ratings periodically while debt is outstanding
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Maximizes pricing competition between providers
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May be consulted on potential credit structures and fiscal actions
Correct Answer
A. Maximizes pricing competition between providersExplanation
Maximizing pricing competition between providers is part of credit enhancement.Rate this question:
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- 3.
Which of the following describes a Fixed Rate Bond?
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Unsecured promissory notes
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10, 20, 30-year maturities
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Usually mature in one year or less
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Coupon rate is reset periodically
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Bank letter or credit required
Correct Answer
A. 10, 20, 30-year maturitiesExplanation
A Fixed Rate Bond is a type of bond that has a predetermined interest rate that remains fixed throughout the life of the bond. This means that the coupon rate, or the interest paid to the bondholder, does not change over time. The answer option "10, 20, 30-year maturities" describes the different time periods for which a fixed rate bond can be issued, indicating that the bond can have a maturity of 10, 20, or 30 years.Rate this question:
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- 4.
When preparing for pricing which of the following is a characteristic of underwriting liability?
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Providing incentives to perform
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Promoting equal opportunities
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Proportionate share of bonds assumed by team members
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Broadening distribution
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Lowering costs
Correct Answer
A. Proportionate share of bonds assumed by team membersExplanation
Underwriting liability involves the assumption of financial risk by a team of individuals. Each team member takes on a proportionate share of the bonds, meaning that they are responsible for a portion of the potential losses. This characteristic ensures that the risk is distributed among the team members and prevents any one individual from bearing the entire burden. By sharing the liability, it promotes accountability and encourages the team members to perform their duties effectively.Rate this question:
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- 5.
The fundamental elements of a bond include:
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Price
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Coupon
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Par Amount
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Yield
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All of the above
Correct Answer
A. All of the aboveExplanation
The correct answer is "All of the above" because all of the listed elements - price, coupon, par amount, and yield - are fundamental components of a bond. The price refers to the current market value of the bond, the coupon is the fixed interest rate paid by the issuer, the par amount is the face value of the bond, and the yield represents the return on investment for the bondholder. Therefore, all of these elements are essential in understanding and analyzing a bond.Rate this question:
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- 6.
_________ is the date the principal of a municipal bond becomes due and payable to the bondholder.
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Expenses
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Debt management
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Trustee
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Maturity
Correct Answer
A. MaturityExplanation
Maturity refers to the date when the principal amount of a municipal bond is scheduled to be repaid to the bondholder. It is the point at which the bond reaches its full term and the issuer is obligated to return the initial investment to the bondholder. This date is important for investors as it determines when they can expect to receive their principal back.Rate this question:
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- 7.
What is debt service?
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The term for the schedule upon which bonds pay principal and interest to the investor/bond holders.
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Benefit of Long-Term Banking Support for Long-Term Capital Program Needs.
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The Syndicate which Names the Lowest Interest Cost is the Winning Bidder.
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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 that outlines the repayment of principal and interest on bonds to the investor or bond holders. This term describes the process of fulfilling the financial obligations associated with the borrowed funds. It is important for investors to understand the debt service schedule as it helps them anticipate the timing and amount of payments they will receive.Rate this question:
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- 8.
Which of these is not the duty of a financial advisor (FA)?
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Assists in developing the financing plan
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Assists in underwriter evaluation and selection
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Assists in preparing rating agency presentations
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Evaluates market conditions and pricing performance of senior manager
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All of the above are duties of a financial advisor
Correct Answer
A. All of the above are duties of a financial advisorExplanation
The given correct answer states that all of the above options are duties of a financial advisor. This means that a financial advisor is responsible for 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. Therefore, there is no duty listed in the options that is not the duty of a financial advisor.Rate this question:
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- 9.
What documents are included in a bond issuance?
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Legal opinion
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Tax certificate
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Offical statement
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Bond resolution
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All of the above
Correct Answer
A. All of the aboveExplanation
All of the mentioned documents are included in a bond issuance. A legal opinion is required to ensure that the bond issuance complies with all legal requirements. A tax certificate is necessary to confirm that the bond issuance is in compliance with tax regulations. An official statement provides detailed information about the bond offering, including its terms and conditions. A bond resolution is a formal document that authorizes the issuance of the bonds. Therefore, all of these documents are essential components of a bond issuance.Rate this question:
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- 10.
What is a yield curve?
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Daily reference rate based on the interest rates at which banks borrow funds from other banks in the London wholesale money market.
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The relation between the interest rate (or cost of borrowing) and the time to maturity of the debt.
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Competition for negotiated financings minimized spread difference.
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Evaluation of market conditions and pricing performance of senior manager
Correct Answer
A. 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 rates or cost of borrowing and the time to maturity of debt. It shows the yield or return that investors can expect to receive from different types of debt instruments with varying maturities. The yield curve is important in assessing the overall health of the economy and predicting future interest rate movements. It can also provide insights into market expectations for inflation and economic growth.Rate this question:
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Current Version
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Nov 15, 2023Quiz Edited by
ProProfs Editorial Team -
May 25, 2011Quiz Created by
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