Chapter 5 - Type of Debt Instruments Flashcards
A municipality borrowing for a short-term period to finance a capital project would issue:
Bond anticipation notes
For an Industrial Development Bond (IDB), the primary source that backs the bond is:
leasing corporations only
Which of the following approvals is required before a municipality can begin making payments on a moral obligation bond?
A) Approval by a majority of legal age voters.
B) Approval by the state legislature.
C) Approval by the bond trustee.
D) Approval by the appropriate state agency.
B) Approval by the state legislature.
Has more than a 10-year maturity, interest paid semi-annually is federally taxable and is a book-entry issuance.
T-Bond
A discounted security that is sold weekly at auction with interest being federally taxable and is a book-entry issuance.
T-Bill
Has a 2-10 year maturity, interest paid semi-annually is federally taxable and is a book-entry issuance.
T-Note
(True or False) During Treasury auctions non-competitive bids are filled first.
True
(True or False) During Treasury auctions competitive bids determine price.
True
(True or False) During Treasury auctions non-competitive bids submit quantity and price/yield.
False
(True or False) During Treasury auctions the lowest accepted price/highest yield clears the auction.
True
The most common security issued by government agencies is a:
mortgage-backed pass-through certificate.
Although agency securities are not direct obligations of the US government, their credit risk is still considered _____.
low
Agency securities are _____ from state and federal registration.
exempt
The Federal Farm Credit Bank (FFCB) is an example of a:
government sponsored entity
Minnie Mae, Fannie Mae, and Freddie Mac are examples of:
mortgage-backed securities
Mortgage-backed securities represent an interest in a _____ of mortgages.
pool
_____ is a unique risk to mortgage-backed securities.
Prepayment risk
Agency _____ provide excellent credit quality and a slightly higher yield than Treasuries.
pass throughs
_____ are created so that multiple firms share in the liability of a bond offering.
Syndicates
(True or False) Voter approval is normally required when issuing general obligation bonds.
True
(True or False) Feasibility studies are used when issuing revenue bonds.
True
(True or False) The issuer and underwriter work out the offering terms in a competitive sale.
False
(True or False) With corporate bonds, the corporation gives up control as well as a portion of profits.
False
(True or False) Interest must be paid on bonds before dividends are paid on stock.
True
