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10 Cards in this Set
- Front
- Back
In what way are municipal securities tax exempt?
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no federal interest income tax, but there is capital gains tax
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Why do municipalities issue long-term bonds?
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1. long-term capital project such as the construction of schools, bridges, etc...
2. long-term budget deficits that arise from current operations |
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What are the two types of municipal security structures?
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1. tax-backed debt
2. revenue bonds |
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What is tax-backed debt?
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debt backed by issuer's ability to level taxes
general obligation debt- unlimited- secured by issuer's unlimited taxing power limited- statutory limit on how much issuer can tax to service the debt |
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What is a moral obligation/appropriation-backed obligation?
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enhances creditworthiness of bond; must be legislative approval to appropriate bonds; not legally binding
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What are public credit enhancement programs?
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bond is legally enforceable; usually used for debt obligations of a state's school system
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What are revenue bonds?
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bonds usually issued for a public project; airport revenue bonds, college and university revenue bonds, hospital revenue bonds
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What are the different types of tax-backed debt and revenue bonds called hybrids?
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1. insured bonds- default is insured against
2. prerefunded bonds- municipality can put debt in US trust/escrow so they have little credit risk 3. asset-back bonds- backed by dedicated revenues: sales taxes, fees |
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Under what criteria are municipal bonds assessed?
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1. debt structure + overall burden
2. issuer's ability and politcial discipline 3. tax collection rates; how big is the base 4. socioeconomic trends- real estate values?; population growth |
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Why are municipal securities largely exempt from SEC regulation:
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1. create harmoney among all levels of government
2. no abuses in municipal securities 3. sophisticated institutional investors usually buy them 4. not many defaults |