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series 7 take 2 > municipal securities > Flashcards

municipal securities Flashcards

1
Q

what is the definition of a municipal bond

A

a debt security by a form of government other than the federal government or an agency of the federal government

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2
Q

what are the two main types of municipal bonds?

A
  • general obligation bonds

- revenue bonds

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3
Q

go bonds are backed by?

A

issuing municipality (taxes)

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4
Q

do go bonds require voter approval?

A

required

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5
Q

go bonds limits are subject to?

A

may be subject to statutory debt limits

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6
Q

describe the underwriting process of go bonds

A

generally competitive bids

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7
Q

go bonds analysis is based on?

A

tolerances to taxes, debt statements, and debt ratios

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8
Q

revenue bonds are backed by?

A

user fees (self-supporting)

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9
Q

do revenue bonds require voter approval?

A

not required

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10
Q

revenue bond limits are subject to?

A

may be subject to additional bonds tests

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11
Q

describe the underwriting process of revenue bonds

A

generally negotiated

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12
Q

revenue bonds analysis is based on?

A

feasibility studies and debt service coverage ratio

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13
Q

prime source of revenue for go bonds?

A

ad valorem taxes

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14
Q

how are municipal bonds taxed?

A

state and locally taxed

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15
Q

what are the two specific go bonds?

A
  • limited tax bond

- double barreled bond

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16
Q

describe a limited tax bond

A
  • go bond

- issued when issuer’s ability to raise taxes is limited

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17
Q

describe a double-barreled bond

A
  • go bond

- bond issue debt funded by project revenues but backed by issuers full faith and credit (taxes)

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18
Q

what are some types of user charges that support revenue bonds?

A

tolls, concessions, fees from highways, bridges, airports, and parks

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19
Q

describe open-end additional bonds test

A

is a covenant in a trust indenture that says all investors are treated equally

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20
Q

are municipal bonds callable?

A

yes

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21
Q

describe the flow of funds in a net revenue pledge

A

operations paid first then the maintenance
1st - operation and maintenance
2nd - debt service

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22
Q

what are the specific types of revenue bonds?

A
  • industrial development revenue bonds (IDRB)
  • special tax bonds
  • special assessment bonds
  • moral obligations bonds
  • public and new housing authority bonds (PHAs and NHAs)
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23
Q

describe industrial development revenue bonds

A

backed by corporations with lease back payments made to issuer

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24
Q

describe special tax bonds

A

backed by taxes other than real estate and ad valorem taxes

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25
Q

what is an example of taxes used to pay special tax bonds?

A

alcohol and tobacco taxes

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26
Q

what is a special assessment bond?

A

only assess property owners who benefit from the bond issue

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27
Q

what is an example of special assessment bond

A

public lighting in a city neighborhood (only people in neighborhood benefiting from the light will be required to pay taxes)

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28
Q

describe moral obligation bonds

A

legislative authority is required to pay back bond holders if revenues are insufficient

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29
Q

what are the two types of PHAs and NHAs

A
  • section 8s

- anticipation notes

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30
Q

describe section 8 PHAs

A

bonds provide financing for low and moderate income housing and are backed by the full faith and credit of the US

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31
Q

describe anticipation note PHAs

A

short-term borrowing in advance of receiving funds from long-term debt

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32
Q

describe rating and yield of PHAs

A
  • safest municipal bonds
  • AAA rated
  • low yields
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33
Q

describe municipal notes

A
  • safe
  • money market instruments
  • AAA rated
  • short-term
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34
Q

what is analyzed when issuing go bonds?

A

attitude towards debt and taxes

  • income per capita
  • employment rate
  • population trend
  • economic diversity
35
Q

what is on a municipal debt statement

A
  • estimated full value
  • assessed value
  • population
  • debt
36
Q

what is analyzed when issuing revenue bonds?

A

economic justification

  • feasibility studies
  • competitive facilities
  • debt service coverage ratio
37
Q

what companies rate municipal bonds?

A
  • moody’s

- S&P

38
Q

what company manages municipal notes?

A

-MIG moody’s investment grade

39
Q

what are the two main private insurance companies for municipal bonds?

A
  • national public finance guarantee corporation

- financial guaranty insurance corporation (FGIC)

40
Q

describe unqualified municipal bonds

A

no legal problems and “unqualified” is what you want when issuing municipal bonds

41
Q

describe qualified municipal bonds

A

there are legal issues present

42
Q

describe flow of new issues with a competitive bid

A
  • municipal dealer notification
  • syndicate develops and submits bid
  • lowest net interest cost wins bid
43
Q

how are new issues of muni bonds notified?

A

the daily bond buyer

44
Q

what is described in the official notice of sale of a municipal bond

A
  • amount and purpose
  • type (go or revenue)
  • interest payment dates (dated date)
  • maturity
  • invitation to bid
  • good faith deposit if required (1-2% usually)
45
Q

what is the minimum investment on municipal bonds?

A

$5,000

46
Q

what is included on a temporary confirmation of interest?

A
  • dated date (when bonds will be available)

- extended principal (how many bonds investor wants to buy)

47
Q

what is not included on a temporary confirmation of interest?

A
  • settlement date
  • accrued interest
  • total dollar amount
48
Q

what is sent to investor after purchase of municipal bond is settled?

A
  • final confirmation

- official statement

49
Q

what does the go index contain?

A

20 specific go bonds each with 20-year maturities

50
Q

what does the revdex contain?

A

25 specific revenue bonds each with 30-year maturities

51
Q

what does the 30-day visible supply contain?

A

total par value of all new municipals to be offered in the next 30 days

52
Q

describe the placement ratio

A

total par value of all municipals sold / total par value of all municipals offered within the previous week

53
Q

two types of syndicates and description of each

A

eastern- undivided %, responsible for % of any unsold bonds

western- divided, only responsible for what they commit to

54
Q

describe backing away

A

failure of a broker dealer to own up to a firm quote.

55
Q

describe a municipal bond bought at a premium

A

must amortize

  • adjusts cost basis down to par
  • premium/# of years = adjustment per year
56
Q

describe a municipal bond bought at a discount

A

must accrete

  • adjusts cost basis up to par
  • discount/# of years = adjustment per year
57
Q

describe OIDs and how they accrete and taxed

A

original issue discounts

  • accrete up to par
  • accretions are not taxed
58
Q

describe how secondary market discount municipal bonds are taxed

A

discounts can accrete and are taxed as ordinary income

59
Q

calculate tax-equivalent yield:

muni bond yielding 3.5%, investor in 15% tax bracket

A

municipal yield / (100%-investors tax bracket)

-3.5% / (100%-15%) = 4.12% taxable yield

60
Q

calculate tax-free equivalent yield:

muni bond yielding 7.2%, investor in 15% tax bracket

A

corporate yield X (100%-investors tax bracket)

-7.2% X (100%-15%) = 6.12% tax free equivalent yield

61
Q

what is the MSRB

A

municipal securities regulation board

  • regulatory agency muni securities
  • they make the rules but do not enforce
62
Q

what agencies regulate banks?

A
  • FDIC
  • FRB
  • comptroller of the currency
63
Q

what agencies regulate broker/dealers?

A
  • FINRA

- SEC

64
Q

if broker dealer is acting as agent..

A
  • commission is disclosed

- name of other party disclosed (on request)

65
Q

if broker dealer is acting as principal..

A

-markup is not disclosed

66
Q

how are insider traders punished?

A
  • both tipper and tippee punished

- if found quilty, will pay 3x gain or $1,000,000

67
Q

in a muni underwriting, the order period is the time in which the syndicate:

A

announces it will solicit customers for the issue

68
Q

which type of muni bond is often subjected to the alternative minimum tax rule?

A

industrial development bonds

69
Q

the legal opinion covers what?

A
  • tax status of the muni debt

- the legality of the muni debt

70
Q

are interest on funds borrowed to purchase muni bonds deductible?

A

no

71
Q

the doctrine of reciprocal immunity is?

A

the view that neither the states nor the fed govt may tax income received from securities issued by the other.

72
Q

describe the spread on a competitive bid underwriting.

A

is the difference between the bid to the issuer and the dollar price at which the underwriter re-offers the bonds to the public.

73
Q

anticipation notes pay interest when?

A

at maturity (short-term market instruments)

74
Q

call premiums represent the differences between what?

A

call price and par

-further away a call date, the lower the call premium

75
Q

in muni underwriting, total takedown is defined as?

A

additional takedown + concession

76
Q

if an indenture has a closed-end provision, this meant that..

A

additional issues will have junior liends

77
Q

describe ARSs (auction rate securities)

A
  • long term variable rate bonds
  • maturities of 20 to 30 yrs
  • interest rates reset
  • failed auctions can occur
78
Q

what is the bond resolution?

A

contains the requirement for the muni to properly keep the facilities books, reporting requirements, conditions of the maintenance covenant, terms of the rate convenant

79
Q

a quotation on a muni security is assumed to be a..

A

bona fide quote

80
Q

what is the largest component of a municipal underwriting spread?

A

the total takedown (additional takedown and concession)

81
Q

what is the MSRBs RTRS

A

real time transaction reporting system
-makes pricing information for eligible muni bonds trades available to the marketplace through third party data vendors within 15 min of trade

82
Q

what is the syndicate letter?

A

lists the terms under which members will conduct the sale of bonds. also describes each member’s sharing of profits, expenses, type of business entity. and good faith deposit requirements.

83
Q

interest on direct debt issued by the us govt id tacable at?

A

the federal level and exempt at the state level

series 7 take 2 (17 decks)

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