Chapter 4 Practice Questions
- 1. Which of the following is an advantage of term bonds for the issuer when compared to serial bonds?
- A. Lower interest expenses over the life of the bond
- B. Sinking fund requirement
- C. Potential to redeem bonds early
- D. Variety of maturities
- 2. When money is regularly put into an escrow account in order to redeem the bonds before maturity, this is called:
- A. Sinking fund redemption
- B. Advance refunding
- C. Defeasement
- D. Make whole provision
- 3. Which of the following would you not find in a competitive bid offering?
- A. The financial advisor helps to prepare the offering.
- B. Voter approval is received.
- C. Bond counsel provides an unqualified legal opinion.
- D. The underwriter helps structure the offering.
- 4. Which of the following is an advantage to the investor provided by a sinking fund?
- A. Reduced interest rate risk
- B. Reduced credit risk
- C. Higher yield
- D. Reduced tax burden
- 5. Which of the following is not a credit enhancement on a municipal bond issue?
- A. Advance refunding
- B. High debt service coverage ratio
- C. Bond insurance
- D. Letter of credit
- 6. The risk that an investment will lose value due to an overall decline in the market is called:
- A. Systematic risk
- B. Interest rate risk
- C. Inflation risk
- D. Specific risk
- 7. If a bond is purchased at a discount and held to maturity, the value of the bond will:
- A. Amortize over time
- B. Depreciate over time
- C. Accrete over time
- D. Fall over time
- 8. For a revenue bond, what defines the legal terms and financing specifications of the bond?
- A. Official statement
- B. Bond resolution
- C. Trust indenture
- D. Unqualified legal opinion
- 9. Markups and markdowns on principal tr