Chapter 5 Practice Questions
1. Which of the following would you be the least interested in looking at to analyze a revenue bond?
A. Protective covenants
B. Flow of funds
C. Net overall debt per capita
D. Feasibility study
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:
A. Designated threshold covenant
B. Rate covenant
C. Operations and maintenance covenant
D. Insurance covenant
3. Where are you most likely to find a list of protective covenants for a municipal bond?
A. The bond resolution
B. The flow of funds statement
C. The bond indenture
D. The feasibility study
4. The city of Mammoth has just issued new advance refunding bonds. Which of the following will probably occur?
A. The credit rating of Mammoth’s refunded bonds will go up.
B. The credit rating of Mammoth’s refunded bonds will go down.
C. The refunded bond’s YTM will go up.
D. The refunded bond’s credit rating and YTM will be unaffected.
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. If a bond were to fall two notches from AA, what rating would it be at?
7. All of the following ratings are not investment grade except:
8. In which of the following methods are municipal bonds typically quoted?
A. Nominal yield
B. Current yield
C. Yield to maturity
D. Coupon rate
9. What is the most common method to quote municipal securities?
A. Basis points
B. Bond points
C. Percentages of par
D. The greater of bond points or basis points
10. When a bond’s YTM increases from 3.46% to 4.86%, how many basis points did it increase?