Series 52: Chapter 5 Practice Questions

Chapter 5 Practice Questions

1. 1. Which of the following would you be the least interested in looking at to analyze a revenue bond?
2. A. Protective covenants
3. B. Flow of funds
4. C. Net overall debt per capita
5. D. Feasibility study
6. 2. A covenant that requires an issuer to set rates or fees at levels sufficient to generate revenue at some designated threshold is called a:
7. A. Designated threshold covenant
8. B. Rate covenant
9. C. Operations and maintenance covenant
10. D. Insurance covenant
11. 3. Where are you most likely to find a list of protective covenants for a municipal bond?
12. A. The bond resolution
13. B. The flow of funds statement
14. C. The bond indenture
15. D. The feasibility study
16. 4. The city of Mammoth has just issued new advance refunding bonds. Which of the following will probably occur?
17. A. The credit rating of Mammoth’s refunded bonds will go up.
18. B. The credit rating of Mammoth’s refunded bonds will go down.
19. C. The refunded bond’s YTM will go up.
20. D. The refunded bond’s credit rating and YTM will be unaffected.
21. 5. Which of the following is not a credit enhancement on a municipal bond issue?
22. A. Advance refunding
23. B. High debt service coverage ratio
24. C. Bond insurance
25. D. Letter of credit
26. 6. If a bond were to fall two notches from AA, what rating would it be at?
27. A. A+
28. B. BBB
29. C. A
30. D. B
31. 7. All of the following ratings are not investment grade except:
32. A. Ba1
33. B. BB+
34. C. BBB
35. D. Ba3
36. 8. In which of the following methods are municipal bonds typically quoted?
37. A. Nominal yield
38. B. Current yield
39. C. Yield to maturity
40. D. Coupon rate
41. 9. What is the most common method to quote municipal securities?
42. A. Basis points
43. B. Bond points
44. C. Percentages of par
45. D. The greater of bond points or basis points
46. 10. When a bond’s YTM increases from 3.46% to 4.86%, how many basis points did it increase?
47. A. 1.40
48. B. 1,400