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 transactions of municipal securities should take into consideration all of the following except:
A.Fair market value of the securities at the time of the trade
B.Expense involved in effecting the trade