7 - Chapters 5 - 8

Front 1

Describe call protection.

Back 1

The number of years after issuance during which bonds may not be called by the issuer.

Front 2

May bonds be called early due to an event which destroys the source of revenue backing the bond?

Back 2

Yes when using a catastrophe call

Front 3

_______ refers to a situation where the issuer sells a new bond to pay off the debt of an old bond.

Back 3

Refunding

Front 4

Refunding would most likely occur when interest rates have ______.

Back 4

Fallen

Front 5

What is the original issue that is being refunded called?

Back 5

Prerefunded

Front 6

Are pre refunded bonds quoted on a yield to maturity or yield to call basis?

Back 6

YTC

Front 7

Into what does an issuer periodically set aside money for retiring debt?

Back 7

Sinking fund

Front 8

What yield would be disclosed for a bond purchased at a premium and callable at a premium?

Back 8

The lower of the yield to maturity or the yield to call.

Front 9

What yield would always be disclosed for a bond that has been prerefunded?

Back 9

YTC

Front 10

What is the IRS method for accreting the basis of a bond?

Back 10

Constant yield or constant interest method

Front 11

Name some of the different types of money market instruments.

Back 11

T bills, bankers acceptances, commercial paper, negotiable CDs

Front 12

What's a step up long term CD?

Back 12

A CD that offers an interest rate that's lower than current rates with subsequent interest rates being paid higher.

Front 13

List some of the risks associated with brokered CDs

Back 13

Call risk, interest rate risk, limited liquidity

Front 14

To what is a reverse convertible structured product linked?

Back 14

To the performance of an unrelated reference asset - often a single stock or basket of stocks, or an index

Front 15

A reverse convertible typically contains what 2 components?

Back 15

A debt instrument that pays an above market coupon and a derivative (often a put)

Front 16

By what types of taxes are state general obligation bonds backed?

Back 16

Income, sales or gasoline tax but also licensing fees and fines

Front 17

When analyzing GO bonds what are some important considerations?

Back 17

Property values, per capita income and debt, population, current debt, tax collection and unfunded pension liabilities

Front 18

Define overlapping debt.

Back 18

That of a municipality that is shared with another political entity for example a school district.

Front 19

Revenue bonds are backed by _______ generated by_______.

Back 19

Specific revenue (user fees) generated by a project or facility.

Front 20

Assuming a net revenue pledge bond, what is the 1st priority according to the flow of funds?

Back 20

Operating and maintenance fund

Front 21

A _____ _____ ______ is a revenue bond back by one specific tax.

Back 21

Special tax bond (bonds issued for highway repair backed by gas tax)

Front 22

T or F: The credit reading of an IDR is based on the credit of the municipality.

Back 22

False. The rating is based on the corporation making the lease payments.

Front 23

What types of municipal bonds are likely subject to the alternative minimum tax?

Back 23

Private activity bonds

Front 24

Bond subject to the AMT will trade with a ______ yield.

Back 24

Higher

Front 25

What are some examples of tax free money market instruments?

Back 25

Municipal notes and tax exempt commercial paper

Front 26

How often do VRDOs adjust their interest rate?

Back 26

At specified intervals such as daily weekly or monthly. They also may allow owners to put (sell) back to the issuer.

Front 27

What is a municipal OID?

Back 27

An original issue discount bond

Front 28

What is the tax consequence if a municipal bond is purchased at a premium and held to maturity?

Back 28

Since the basis must be amortized down to par there is no capital gain or loss when the premium bond is held to maturity.

Front 29

What is the tax consequence of a municipal bond is purchased at a premium and sold prior to maturity?

Back 29

A capital gain or loss is determined by the difference between the adjusted basis and the proceeds of the sale.

Front 30

In a bond swap what features need to be changed to not trigger a wash sale?

Back 30

Change the issuer or the coupon or the maturity

Front 31

A municipal bond is bought in the secondary market discount and sold for again before maturity. What is the tax consequence?

Back 31

The gain is taxable as ordinary income up to the accreted value and a capital gain for any amount above that

Front 32

$9 million gross revenue, $3 million oper/maintenance expenses and $2 million debt service. What is the debt service coverage ratio?

Back 32

(9-3) ÷ 2 = 3:1 coverage

Front 33

What is stated in a municipal indenture (bond resolution)?

Back 33

Issuers responsibilities, bondholders rights, and the different covenants made to protect bondholders

Front 34

In what covenant does the issuer pledge to keep the project in good working order?

Back 34

Maintenance and operation covenant

Front 35

What are auction rate securities (ASRs)?

Back 35

Long term bonds (municipal or corporate) with a variable interest rates set periodically through a Dutch auction

Front 36

How does the dutch auction set the interest rate on auction rate securities?

Back 36

It sets the lowest interest rate at which all securities being offered will clear the market (net clearing rate).

Front 37

Interest on federal farm credit system and FHLB securities is subject to which taxes?

Back 37

Federal only, exempt from state and local

Front 38

What system is used for the issuance of Treasury securities?

Back 38

An auction

Front 39

How is interest on treasuries treated for tax purposes?

Back 39

Exempt at the state and local level but subject to federal income tax